Are you thinking about remortgaging? It’s a decision that could save you thousands of pounds, but it’s not always the right choice for everyone. The key is to understand the potential benefits against the potential costs. This guide will walk you through the key factors to consider so you can make an informed decision about your mortgage.
When should you remortgage?
When remortgaging, timing is everything. It's possible to remortgage at any time, but the best time is typically when your current deal is coming to an end. This is because most mortgage deals have early repayment charges (ERCs) that are applied if you leave the deal before its term is up.
The optimal time to start looking is about 3–6 months before your current deal expires. This gives you plenty of time to secure a new deal and have it ready to go, avoiding the risk of being placed on a higher Standard Variable Rate (SVR).
A remortgage may be a good idea for you if:
- Your current deal is ending soon. By switching deals before you're moved to your lender's Standard Variable Rate (SVR), you could avoid a potentially much higher interest rate.
- You want to consolidate debt. You may be able to remortgage to release equity from your home to pay off other, more expensive debts like credit cards or personal loans.
- You want to borrow more money. If you need to raise funds for home improvements or to buy a second property, remortgaging can be a cost-effective way to do so.
When remortgaging might not be the best option
While remortgaging can be a great option, there are several scenarios where it may not be in your best financial interest. It's crucial to consider all the potential costs and risks before committing.
Here are some common reasons why remortgaging might not be right for you at this moment:
- High early repayment charges (ERCs): The most common reason to delay a remortgage is if your current deal has a high ERC. You must calculate if the potential savings from a new, cheaper interest rate will outweigh the cost of the ERC and any other fees. In some cases, waiting a few months until your ERC expires could save you a substantial amount of money.
- Small loan size: If you have a small mortgage balance remaining, the potential savings from a new, lower interest rate may be minimal. When you factor in arrangement fees, valuation costs, and legal fees, the remortgage may not be worth it. It’s important to perform a cost-benefit analysis to ensure you will actually save money after all fees are taken into account.
- Recent credit issues: Lenders will perform a credit check when you apply for a new mortgage. If you have recently had credit issues, such as missed payments or a default, it could result in:
- Higher interest rates: Lenders may view you as a higher risk and offer you a less competitive deal.
- A declined application: If your credit history is poor, you might not be approved for a new mortgage at all.
- Change in circumstances: If your income has recently decreased or your employment status has changed, you might struggle to get approved for a new mortgage. Lenders assess your financial stability to ensure you can afford the repayments.
Get Expert Guidance
Navigating these decisions can be complex. Consulting an expert mortgage broker is invaluable. We can review your specific financial situation, compare the costs and benefits of remortgaging, and advise you on the best path forward.
Speak to an expert today to ensure you make an informed decision.