The Rundown: Remortgaging. Should I, or Shouldn’t I?
You’ve got a house, got a mortgage and paying that is probably the biggest wedge going out of your bank account each month. So, why would you consider a remortgage? Simple answer: it could save you a lot of cash.
Houses are a bit like piggy banks. You can leave your money in them or choose to take it out. Most home owners take it out to pay for home improvements or to pay off debts. That’s remortgaging. You can also switch your mortgage to a provider offering a better deal. That’s remortgaging as well, without the pig getting it.
If you’re thinking about doing either of these things, you’re not alone. Around a third of all home loans made in the UK are remortgages. So, should you, or shouldn’t you? The following might help you decide.
- You want to borrow more money. The most common reasons for this are to build a swanky new kitchen or some other home improvements that will make your mates jealous. Or you’ve cranked up your credit card and wish you hadn’t. Be prepared for your lender to ask for evidence such as builder’s quotes or proof that debts have been paid.
- You want to save money. Depending on your circumstances, remortgaging could save you serious amounts of cash. Search around – there’s a fair chance you’re missing out on the opportunity to reduce your payments or the total cost of your loan.
- Your current deal is about to come to an end and you know the repayments are going to be jacked up. The typical length of time offered on the best mortgages, such as tracker, fixed-rate or discount, usually only last a short amount of time, anything between 2 – 5 years.
- Your house has gone up in value. Get in there! If the price of your home has increased considerably since you bought it, you may find you’re in a lower loan-to-value band and eligible for much lower rates.
- You want to overpay! You might have had a wage increase or a windfall and want to lower your mortgage, but your current dealer won’t let you. A remortgage will help you reduce your loan size and get better rates.
- You want a better rate. If you have a large amount of mortgage debt, you can make huge savings switching to a better deal – even if you incur an early repayment penalty, exit charge or admin fee.
- If it’s a quick fix. Remortgaging to pay off debts then carrying on spending as you did before will result in even bigger, more serious problems.
- If there’s any likelihood you won’t be able to keep up with payments. The penalty for this is huge – you could end up losing your home. Credit card companies might be a bit snarky but they can’t take your house, mortgage lenders can.
- Your situation has changed. You might have switched jobs, become self-employed or your income has fallen. If this is the case, chances are you won’t be offered another deal elsewhere. Lenders must see evidence of your income.
- Similarly, if your credit rating has taken a hit. If this has happened since you took out your mortgage you may not qualify for a new loan. It only takes one missed payment for your mobile phone, utility bill or credit card to scupper your chances.
- The price of your house has dropped. If your home is now worth less than when you bought it, this will go against you, especially if you’re in negative equity. This means the value of your home is less than the size of your mortgage.
- Your mortgage has an early-repayment or penalty or exit fee. The likelihood is, this will mean it will cost too much to free yourself from your current deal.
If you’re stumped and not sure what to do, put the pig down and pick up the phone to your current mortgage provider. That’s the best place to start. Ask them what they can and cannot do for you. Then do your sums. If they don’t add up, search banks and building societies who specialise in remortgaging deals or consider speaking to an independent financial advisor.