Should I Remortgage?
Don’t think of your mortgage as a one-off purchase, but as an ongoing process that may need careful maintenance. Many homebuyers need to remortgage regularly in order to keep their loan affordable – do you?
A cousin of mine is a mechanic with the RAC. One time he was called to a breakdown on the M4, an old rustbucket smoking under the bonnet like freshly burnt toast. ‘Out of interest,’ my cousin asked, coughing through the fumes, ‘when was this car last serviced?’ The driver took out his phone. ‘I’ve no idea,’ he admitted. ‘Let me call my grandma.’
Sensible drivers know that if you don’t service your car regularly, then sooner or later it’s going to cost you bigtime. The same can be said of your mortgage. Although a mortgage term is usually for around 20 years, it’s better to think of taking out a mortgage as a regular process of maintenance. In most cases it’s good practice to ‘service’ your loan by remortgaging when the favourable terms of your deal run out – just like servicing a car. Otherwise, your lender could end up taking you for a ride.
Rule 1: Plan ahead
Never step into anything without knowing how you can get out again. In other words, whenever you take out a mortgage you should be looking ahead to your next one. Go through the terms of any mortgage deal you’re offered with a fine tooth comb (or get an adviser to do it for you). Look especially for early repayment fees (also known as the redemption penalty). These may apply beyond the terms of your mortgage deal, forcing you to spend one or more years on your lender’s standard variable rate (SVR), which could be very costly.
Reasons to remortgage
Assuming you’ve made sure you can leave your current mortgage without paying a huge penalty, why would you want to? Here are the top reasons:
- Your current deal is about to expire, which would push you onto the lender’s SVR
- You want to switch to a different kind of mortgage, such as a fixed, capped or tracker
- You need a more flexible mortgage, such as one that can let you miss payments or make excess payments (useful if your income fluctuates)
- Your home has risen significantly in value (so you could get a better mortgage deal)
- You want to borrow money against your property (but see below)
And some reasons not to
Remortgaging isn’t always the best option – and it certainly shouldn’t be approached lightly. Here are the times when you should think twice before acting:
- Your outstanding loan is small (e.g. £50,000 or below).
The switching fees are likely to wipe out any potential savings.
- You can borrow money more cheaply elsewhere.
Although it’s possible to borrow money against your property, it’s rarely the best solution. Consider: if you add £5,000 to a 25-year mortgage at 3 per cent, you’d pay as much in extra interest as if you’d borrowed that £5,000 over 5 years at a whopping 15 per cent. You can definitely find a better finance deal than that.
- Your current mortgage has a large early repayment fee.
If you didn’t plan ahead and are saddled with a big redemption charge, then it may cost you more to move. However, your current lender may let to change to another of its own deals at a reduced charge. Check to see if they offer anything better and see if it’s worth moving.
- You have a high loan-to-value ratio.
If your equity is low (say, if you’re on a 90 per cent mortgage) then you’ll struggle to get a better deal elsewhere.
- Your circumstances have changed.
Were you offered your current mortgage based on you and your partner having two steadier, higher paid jobs than you have now? If so, then consider sticking with what you’ve got – you probably won’t be offered a deal this good in your current situation.
How to remortgage
Your best option is always to talk to an independent mortgage adviser or an IFA who specialises in mortgages. They can assess your current deal, take your circumstances into account and find you the best deal from the whole of the market – potentially saving you thousands of pounds over the mortgage term. They can also alert you to any lock-ins or unfavourable aspects of the deal, so you don’t get caught out further down the line.
You will usually need a solicitor too to handle the legal side of the transaction – you can find one here.
If you’re looking to remortgage, a lot depends on your credit score. You can check your score, see how it might affect your prospects and even find out how to improve it at Experian CreditExpert.