When Could be the Best Time to Remortgage my Property?
Remortgaging when interest rates are low can be a way for homeowners to save money, especially if their mortgage was taken out many years ago when interest rates were high. However, there are other factors to consider before you commit.
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Brexit uncertainty and a recession following the coronavirus has created uncertainty among lenders as to what exactly is going to happen to the property market long-term.
Regardless of the economic climate, taking out a fixed-rate mortgage can be a good option when interest rates are low.
Understandably, many homeowners will look into long-term fixed-rate mortgages when the average mortgage interest rate is low. However, there are many factors to consider.
Thankfully, wheeler-dealer type strategies that were once used are now better regulated by the FCA, meaning you will be provided with all the details you need as opposed to contending with overly aggressive sales tactics that benefit the lender rather than the consumer.
With that said, it is worth familiarising yourself with the actual definition of remortgaging.
What does remortgaging involve?
Essentially, remortgaging sees borrowers transferring their current mortgage deal to a new one. In most cases, this is done to secure a lower interest rate, reducing monthly repayments; to take out additional equity on the property; or when their current mortgage deal is coming to an end.
Most mortgage providers will entice customers with deals with attractive starter rates but these will only last for a set number of years. Once the deal has expired, you would be automatically moved to their Standard Variable Rate (SVR) mortgage which will often have higher rates.
Remortgaging can also be a way for homeowners to take out additional funds against the equity of the property. This money can be used to make home improvements, which can subsequently increase the value of the property. However, whilst remortgaging can be a way to access finance, it does mean paying back more in the long run.
Read our guide on the key things to consider when remortgaging for more information.
Is it the right time for me?
When someone asks, “When can I remortgage?” it depends on their situation.
If your current mortgage deal is coming to an end, then remortgaging to a new deal, either with your existing lender or with a new lender, could be a good idea, rather than transferring onto their SVR mortgage.
Homeowners can shop around and remortgage to a deal with interest rates and a term that suits their requirements.
In some cases, remortgaging can be an attractive proposition to homeowners looking to take advantage of the favourable deals and low interest rates which emerge during certain periods of economic activity.
Indeed, many UK homeowners seize the opportunity of overall lower interest rates to remortgage to a cheaper deal with smaller repayments. However, if they are part way through their existing fixed-term mortgage deal, they would need to account for early repayment charges and decide whether this extra cost will still make it worthwhile switching.
To determine whether remortgaging is right for you, it's important to always explore all of the options open to you thoroughly, before committing.
When you might not want to remortgage
The best time to remortgage has already been covered, but how about when not to? You need to look out for charges that may apply – typically exit fees and early repayment charges – which could well cancel out the potential savings of remortgaging to a cheaper deal.
Whilst remortgaging can provide homeowners with a number of benefits, it doesn’t always make financial sense. If you’re already satisfied with your current deal or have just recently committed to a current agreement with your lender, remortgaging may not always be a prudent decision.
You should also consider the amount of equity you own in your home and whether your property has risen or fallen in value since taking out your mortgage. The more of your house you own, the lower the LTV (loan to value) you can get, which will open up more attractive remortgage deals to you. If your house price has gone up then you would be able to benefit from an even lower LTV ratio.
However, if your house has fallen in value, then you may find it more difficult to remortgage or access the most attractive rates.
Is remortgaging my property worth it?
When to remortgage (and if it is worth it or not) depends on your financial circumstances.
Switching from one lender to another always involves additional charges which can include an arrangement fee, a valuation fee, many associated legal fees, and an exit fee. If you can afford these and still be in pocket, then remortgaging a property could end up saving you significant sums of money in the long term.
However, if you work out that remortgaging could cost you more than staying with your current deal, it might not be the best option for you. Thoroughly review the market before committing to a long term contract with significant financial implications.
Also strongly consider getting help from a qualified mortgage advisor to help you understand the full impact of re-mortgaging.
Compare remortgaging deals
You can track and compare many remortgage deals by using a comparison tool.
Any important financial decision should naturally bring a whole host of pre-considerations. Always factor them into your choice. Remortgaging a property is a big call and shouldn’t be treated lightly.
If you believe the pros outweigh the risks involved, then taking the route of remortgaging your property could spawn many financial benefits in the long run.
John Ellmore is a director of NerdWallet UK and is a company spokesperson for consumer finance issues. John is committed to providing clear, accurate and transparent financial information. Read more