Remortgaging

How to stay on the best mortgage deal

You should not think of your mortgage as a one-time purchase, but as an ongoing financial transaction that needs frequent attention. In order to ensure that the loan secured on your home remains affordable, you will probably need to seek out new mortgage deals every few years. This is called remortgaging.

Why remortgage?

A mortgage is rather like any large-scale, long-term purchase, in that it needs regular maintenance. Although a full mortgage term is usually for around 20 years or longer, in practice you should plan to take out a new one whenever the favourable terms of your original deal run out. Typically this will be every two to five years (ten-year rates are available, but may not provide the best value).

Here are some reasons why you might want to remortgage:

  • 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 ‘Reasons not to remortgage’ for why this often isn’t the best solution)

 

Don’t get locked in – redemption fees and penalties

Whenever you take out a mortgage, always think about your next one. You need to make sure you won’t get locked into an expensive mortgage when you current deal expires. 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 not to remortgage

Remortgaging isn’t always the best option. Here are five reasons why you may want to reconsider.

1. Your outstanding loan is small (e.g. £50,000 or below).

The switching fees are likely to wipe out any potential savings.

2. 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.

3. 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.

4. 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.

5. Your circumstances have deteriorated.

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

Talk to an independent mortgage adviser, mortgage broker 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. 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. Making the right choice at the right time can potentially save you thousands of pounds over the mortgage term.

You will usually need a solicitor too to handle the legal side of the transaction. Find all the advisers you need using our smart postcode search.

Some questions to ask your financial adviser or mortgage broker:

  • Should I remortgage now?
  • Will I have to pay any penalties?
  • How long will it take for a better mortgage deal to make up the cost of penalties / fees?
  • What are the consequences of staying on my current mortgage?
  • Is there anything else I can do to reduce my mortgage repayments?
  • Can I pay off my loan early?
  • My circumstances have changed - what does this mean for my mortgage?