Re-mortgaging is where you pay off your existing mortgage and switch to another mortgage deal or lender. There are good reasons why you might consider re-mortgaging – not least saving money – and it’s worthwhile considering them all. Reasons for re-mortgaging commonly include:
Re-mortgaging to get a better interest rate
When you take out a new mortgage, you normally get an introductory deal – for example a low fixed or discounted rate or a low tracker rate for the first few years of your mortgage. Introductory deals normally last for between two and five years. Once the deal ends you’ll probably be moved onto your lender’s standard variable rate, which will usually be higher than other rates that you might be able to get elsewhere.
So when your introductory period ends, take a look at the market to see if switching to a new mortgage deal will save you money. It’s also worth reviewing options before interest rates change. Bear in mind that if you only have a small outstanding mortgage, the amount you stand to save may be too low to make switching worthwhile.
Reducing your loan-to-value to get a better rate
Every mortgage deal has a limit to how much you can borrow when compared with the current value of the property. This is shown as a percentage and is called the loan-to-value. When you re-mortgage, the lower the loan-to-value you need, the more deals may be available to you, meaning you may be able to get cheaper mortgage deals.
Bear in mind that when you apply for a mortgage, the lender’s valuation may just involve checking the outside of the property from the street. If you think the valuation is much too low – and that you’re losing out on a better rate as a result – ask the lender to reconsider.
Re-mortgaging for more flexibility
Re-mortgaging may also enable you to get a more flexible deal – perhaps you can get the opportunity to overpay. Or maybe you want to switch to an offset or current account mortgage, where you use your savings to reduce the amount of interest you pay permanently or temporarily – and have the option to draw your savings back if you need them.
Re-mortgaging to consolidate debt
If you have a lot of debt, you might be tempted to borrow some extra money from your existing lender and use it to pay off your other debts. Or, you might want to re-mortgage with another lender for a higher amount to pay off other debts. In both cases you will need to take advice, and following the introduction of new rules, lenders must apply stricter checks to make sure you can afford to repay the higher amount.
If the lender considers that you can’t afford to borrow more, you will be turned down.
Even though interest rates on mortgages are normally lower than rates on personal loans – and much lower than credit cards – you may end up paying far more overall if the loan is over a longer term.
Review your mortgage regularly – you can save a lot of money by re-mortgaging. So make sure you’re reviewing your mortgage regularly. An impartial mortgage broker can make sure that you are looking at the best deals for you and then put all of the arrangements in place for switching your mortgage over.
Your property may be repossessed if you do not keep up repayments on your mortgage.