When you remortgage, you take out a new mortgage on a property that you own. There are two main reasons – either the new deal is cheaper or you want to borrow money against the property’s value.
You can apply for a remortgage at any time, although you might not be approved, but some times are better than others.
How does it work?
Remortgaging means that you’re changing your mortgage deal or product. You can either move to an entirely new lender or to another deal with your existing provider, which is sometimes known as a product transfer.
You have to apply for a new mortgage in a similar way to your initial application, although if you’re staying with your current provider, it can be more of a box-ticking exercise. You should know which product you want to move to, however, and make sure it’s right for you.
When’s the best time to remortgage?
While you can remortgage at any time, the point is to improve your finances, so you should choose your moment.
Your current deal is about to end
Many fixed-rate or tracer deals are for two or three years and once these deals end, you’ll be moved to your lender’s standard variable rate mortgage, which is almost always at a higher interest rate.
If your deal is due to end in three or four months, it’s time to start your search for a new deal. Your current provider will probably try to tempt you with an attractive new rate and this could work well for you, but you should still cast your net a little wider, just in case.
Interest rates are suddenly particularly low
If the Bank of England’s base rate falls to a rate that’s significantly lower than it was when you took out your mortgage, then it might be worth remortgaging before your current term ends.
You’ll usually have to pay an early repayment charge if you switch products before the deal ends, but if your new interest rate is much lower, your savings might outweigh this fee, so do the maths before committing to anything.
You’ve built up some equity
As you pay down your mortgage, you build up equity in your property and this moves you through the loan-to-value (LTV) bands. The lower the band, the better, as your loan value is smaller in proportion to the value of the property. A low LTV can secure you lower interest rates and this, combined with the fact that your outstanding mortgage amount is smaller than it was at the start, can result in significantly smaller monthly payments.
Remortgaging to borrow some money
Another reason to remortgage when you’ve built up some equity is to borrow money against the value of the property or release a lump sum.
This lump sum isn’t free money, however. It’s still tied to your property and the equity in it, so your mortgage provider will probably ask what you want the money for, with purposes like home improvements or paying off other debts proving more popular among lenders.
Remortgaging to make overpayments
If you have a windfall, such as an inheritance or significant pay rise, you might want to make some overpayments on your home loan. However, many mortgage providers will charge fees for overpayments or will have limits on the amounts you can overpay for free.
Switching to a new product or provider will let you make a size of overpayment you want to, but you should make sure that any early repayment charge doesn’t exceed the overpayment or make it hardly worth your while.
