With the end of the energy price cap and a rise in national insurance due to take effect, many of us are bracing for our monthly outgoings to increase. Add the rising cost of fuel into the mix and it’s not difficult to appreciate why we’re being warned that Britain is on the brink of a cost of living crisis.
Taking all of this into account, it’s understandable to wonder whether now is a good time to remortgage. The short answer is: it depends on your circumstances. While some might find this the perfect time to lock in a lower rate, others may well be better off staying put.
To help you decide if remortgaging is the right thing to do we’ve put together this brief guide explaining when it’s a good time to remortgage.
Reasons in favour of remortgaging:
Remortgaging at the right time could help you to release equity in your property, reduce the length of you mortgage, and lower the amount you have to repay each month. Here are just some scenarios when remortgaging can be a good idea.
Your current fixed rate is coming to an end
A fixed rate mortgage allows you to lock in an interest rate for a fixed period of time, usually two, three, five, or ten years. This means that no matter what happens, your interest on your mortgage won’t go up or down.
When your fixed rate ends you’ll automatically be moved to your lender’s standard variable rate (SVR). SVRs aren’t fixed, meaning your monthly repayments could go up or down. However, you can start the process of remortgaging to another fixed rate up to six months before your current mortgage expires.
If you secured your mortgage via a broker, he or she will reach out to discuss your options with you around three months before your current fixed rate expires.
You want to take advantage of lower interest rates
If you have a large mortgage and interest rates have dropped, you may find it beneficial to remortgage even before your current deal expires.
Bear in mind that while you are free to remortgage at any time, many lenders charge a fee for exiting your mortgage early. To ensure you’re doing the right thing, weigh up the cost of leaving against the savings you would make by remortgaging (remember to factor in product and valuation fees). If the savings outweigh the costs, it might make sense to remortgage.
Your home has increased in value
If the market price of your home has gone up substantially since you bought it, remortgaging might allow you to switch to a lower rate of interest or reduce your mortgage term.
If you’re approaching the end of your fixed deal term this is perfect timing, but if you’re still outside of this you’ll need to either wait and hope the market holds or weigh up the costs of switching to see if you could still remortgage and save money.
You’ve inherited a large sum of money
Many fixed rate mortgages allow for overpayments but restrict how much you can overpay each year. This can be frustrating if you’ve received a large inheritance but your overpayment threshold is restricting you from putting it all towards your mortgage.
In this instance you may find it beneficial to remortgage. You’ll be able to use the full sum of your inheritance and may even secure a lower rate on interest on the remaining balance. Just remember, you may have to pay an early repayment fee to your existing lender if you remortgage before your fixed rate expires.
When isn’t it a good time to remortgage?
There are also times when remortgaging might not be the best option. Here are a few occasions when it can make sense to hold off:
Your home’s value has decreased
If your home is worth less than when you bought it you could find yourself in negative equity. In this scenario it’s better to sit tight and keep paying your mortgage until property prices increase again.
You’re earning less than before
Just as when you first applied for a mortgage, you’ll need to prove your income when you want to remortgage. If your earnings have decreased, so will the amount you can borrow.
This shouldn’t prevent you from switching to a new product with your existing lender, however.
Your mortgage exit fees are high
If your lender charges an exit fee for leaving your mortgage early it can make sense to hold off remortgaging until your fixed rate ends. If you can’t wait, talk to your lender about switching to another product. In this scenario an early exit fee may not apply or the fee may be reduced.
Your mortgage is really small
If your mortgage is very small it can be cheaper in the longterm to stay put rather than switch and incur additional fees. Some lenders won’t loan at all if the mortgage is below £25,000, so in this scenario remortgaging may not even be an option.
Is it the right time to remortgage?
As we said at the outset, when to remortgage comes down to personal circumstances.
There are a number of factors (other than those above) that can affect your ability to remortgage, such as if you’ve accepted financial assistance during the pandemic, spent a period of time on furlough, or left a permanent job to become self-employed.
If you’re thinking about remortgaging the best thing is to speak to one of our brokers. Applying independently to lots of different lenders can negatively impact your credit score, which can also make it difficult to remortgage.
Our brokers can do a soft check that won’t affect your credit history. To get started contact us.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.