Your mortgage is almost certainly one of your longest lasting and most expensive monthly outgoings. Therefore, making sure you have the best deal available to you when it comes to your mortgage can save you thousands and remortgaging may be the answer. Remortgaging is the process of taking out another mortgage on your property. You could remortgage to simply replace your current mortgage with a better deal, or you could remortgage to borrow money against your property.

There are a number of reasons to remortgage. You may wish to switch lender because you feel you are paying too much or because you want more flexibility in regards to how much you can pay. Although remortgaging and switching lenders may appear to be an easy option to save money, that’s not always the case. The exit fees from your current mortgage and charges for switching to somebody else can be huge – sometimes thousands of pounds – so you’ll need to factor in the cost before committing to remortgaging.

So, when should you remortgage? And when should you definitely avoid it?

When to remortgage

Standard Variable Rates

The best mortgage rates tend to be those found on short-term new customer deals. When that deal comes to an end, you’re likely to be put on your lender’s standard variable rate (SVR), paying a lot more in the way of interest. If this has happened to you, consider remortgaging. You’ll be able to shop around to find the best deal available for your situation, allowing you to drop down to a cheaper rate.

Rising interest rates

If Bank of England interest rates are rising, it may also be time to look for a new mortgage provider. The most common varieties of mortgage are ‘fixed rate’ and ‘tracker rate’. A tracker rate mortgage works out your payments based on interest rates, while a fixed rate is just that; fixed by the lender. Switching to a fixed rate deal to avoid rising interest rates is a prime example of how remortgaging can save you money.

Increase in home value

If the value of your home has dramatically increased, you may also find that remortgaging is a step in the right direction. The mortgages available to you go down in price based on the loan-to-value ratio of your house. If the price of your home has gone up, you may be entitled to a much better mortgage deal.

Unable to overpay

If you’ve come into a substantial amount of money, perhaps through a pay rise or inheritance, you might be able to overpay on your mortgage – paying it off more quickly. If this is the case, you should first ask your current lender if it would be possible to pay more per month, but sometimes they won’t allow this to happen. If you are unable to overpay with your current lender, consider remortgaging to someone that will allow you to pay more, reducing the size of your overall loan.

Need for flexibility

You may also consider remortgaging if you need a little more flexibility from your current mortgage provider. Whether you’re changing jobs, taking some time off work or going back into education, you may want to take a payment holiday. If this is the case, you might consider remortgaging to a lender that will allow you to take them.

Aside from payment holidays, many mortgage lenders today offer a variety of flexible features that you may feel are worth the cost of remortgaging. However, make sure to check how much these extra features will cost, to ensure that your mortgage payments don’t increase too much and remain affordable.

Switching plans

Finally, you may be interested in remortgaging if you’re considering switching from an interest-only plan to a repayment mortgage. Most lenders will allow this switch without you having to remortgage, so you should ask before considering remortgaging. However, if you’re looking to change from a repayment mortgage to interest-only, it’s likely to be a bit more difficult, so you might have to plan a remortgage.

When not to remortgage

Small mortgage debt

If you have a small mortgage debt of around £50,000 or under, you’re unlikely to require a remortgage. You’re less likely to save in the long run as the fees required to change lender will knock you back more than whatever rate you’re currently paying. Attempting a remortgage on a home where you only owe a little is unlikely to be worth remortgaging for. You’re likely to be better off if you just stay in your current repayment bracket. Furthermore, most lenders won’t even give out mortgages for under £25,000, so you may have no choice but to stick with your current lender.

High early repayment fees

If your early repayment fees are large, it’s unlikely to be worth remortgaging before your current term is up. A big early repayment charge will really eat into whatever you might save when you switch to another lender. If you have a long time left on your current deal, it’s worth asking your lender if you would be able to move to a different deal that they themselves offer.

Decrease in home value

While an increase in your home’s value may be a good reason to remortgage, a loss in value is not. Your mortgage may have covered 90% of your home’s value, but if that value has dropped you could find yourself in negative equity. If this is the case, you should stick with your current lender, make as many overpayments as possible and hope that house prices in your area rise soon.

Poor credit score

Similarly, if you’ve had credit issues since getting your current mortgage, it’s advisable to work on your credit score before heading towards remortgaging. Give yourself a year to stabilise your credit before moving to remortgage, otherwise you may be rejected and your score could continue to drop.

Low equity

If you have very little equity and own less than 90% of your property outright, you are likely to find it very difficult to remortgage for a better deal. Despite this, many lenders now offer 95% mortgages, so it might still be worth shopping around for a better rate.

Current deal is ideal

Finally, and perhaps most obviously, you shouldn’t remortgage if you’re already on a rate that’s ideal for you. You may see some alternative rates with some attractive extra features, but they’re unlikely to be worth the costs of remortgaging. However, even with a good deal under your belt, you should always keep your eyes open for better things in the future. Ultimately, it’s unlikely that you’re going to be on the best mortgage rate forever.

The remortgaging process

If you’ve decided that remortgaging would be beneficial to you, it’s time to start the process of making the change. Remortgaging is a big step to take, so make sure you talk to the professionals and arrange to see an independent mortgage broker. They will advise you on the best deals for your personal situation and are regulated to ensure that they cannot give harmful advice.

This article is simply a guideline. To find out if remortgaging is right for you, it’s important to seek out impartial financial advice. Here at IMC, our remortgage brokers will help you through the entire process. We aim to save you the hassle of contacting your lender and doing hours of research to help you save money.