Is now a good time to re-mortgage your home?
Switching mortgages can seem like a daunting process, but it’s a fairly standard practice nowadays and is something that anyone with a mortgage will likely do at one time or another.
Since 2009, the interest rate set by the Bank of England has been under 1% and, at the time of writing, stands at 0.75%. These historically low interest rates have helped buyers and homeowners gain access to better mortgage rates and deals.
During this current period of economic uncertainty, some homeowners have been taking advantage of longer-term, lower interest rates, by re-mortgaging their current property.
What is re-mortgaging?
Put simply, re-mortgaging involves taking out a new mortgage on a property you already own – either to replace your existing mortgage, or to borrow money against your property.
To show just how many homeowners go through the re-mortgaging process, the July 2019 report from UK Finance suggests that around a third of all home loans, made in the UK, are re-mortgages.
When you decide to re-mortgage, you will have the option to stay with your existing mortgage provider, or move to a new one. There are pros and cons to both options, so make sure you do your research into what each can offer you.
The new mortgage product you choose might be with a different bank or building society altogether, but remember, the cheapest deal doesn’t always mean best; think about what suits your circumstances.
Before committing to re-mortgage, ensure you have spoken to your existing provider to understand whether there may be any fees involved in you proceeding further.
When can you re-mortgage?
As before, this will depend on both the terms and conditions of your existing mortgage, as well as your reasons for wanting to remortgage. For example, if you are looking to remortgage in order to borrow additional money for a loft conversion, you may have time constraints that will affect your decision and how quickly you want to proceed.
If, however, your current mortgage is a fixed term deal, this could alter when you may want to make the decision to re-mortgage due to fees you would have agreed when you first took out the mortgage.
If you need help understanding what your options are, you can speak to your current lender directly, who can provide guidance on the details of your existing mortgage.
When does re-mortgaging make sense?
Re-mortgaging could make sense if you can get a better deal than what you currently have. This typically means you can either pay less interest and lower fees or that you can get more flexibility (i.e. a chance to make bigger overpayments).
Here are some key reasons why you might want to re-mortgage:
- Your current deal is about to end
- You want to try and find a better rate
- Your home has significantly increased in value and you’d like to release some equity
- You’re worried about interest rates going up
- You want to overpay but your current mortgage product won’t let you
- You want to switch from an interest-only mortgage to a repayment mortgage
- You want to borrow an additional amount, perhaps for home improvements
But you should perhaps be cautious of re-mortgaging if:
- Your mortgage debt is really small (and so may not make financial sense to change)
- Your existing mortgage has high early repayment charges
- Your home’s value has dropped
- You have very little equity
- You’ve had credit problems since taking out your last mortgage
What are some handy tips for re-mortgaging?
Firstly, do your research. Don’t be shy about asking your existing lender if they’re offering new deals. Since you’re already a customer, they may be able to simplify the process and waive some fees. You may also wish to speak to a broker at this point (though be aware there is likely to be a charge for this) or use a mortgage comparison tool to get a feel for what else is available.
Next, do your sums. Once you find mortgages you may be eligible for, it’s time to do the maths. Remember to consider not just the interest rate but also exit and set-up fees.
Make sure you understand what’s involved. Mortgage contracts can be confusing, so you may choose to speak to a professional before committing. If not, make sure you’ve read through all paperwork thoroughly and are clear on any fees or additional terms and conditions.
Finally, wait for the process to complete. Your new lender will repay your old mortgage, set up your new one and get the property title deed from your old lender on your behalf.
In summary, re-mortgaging could mean lower monthly repayments, a cheaper mortgage and more flexibility, but to decide if it’s worth pursuing, consider your financial situation, how much is left on your current mortgage, the interest rate and fees and your new mortgage’s terms and conditions.