As you may or may not be aware, a remortgage is the act of taking out a new mortgage to pay off and replace an existing mortgage, for a multitude of reasons.
A remortgage isn’t always the right decision for every homeowner, but can be a good way to achieve a variety of home owning goals.
Generally speaking, on a mortgage, you’ll have some sort of introductory or fixed-period. Homeowners typically fix their rate for 2-5 years, allowing them to retain the same consistent interest rates for that period of time.
When that period is due to end, a homeowner will typically look to take out their remortgage. We tend to get back in touch with our customers about 6 months before this, so we can run through the process in the background, allowing for a seamless transition as one mortgage ends and your new one starts.
It’s important not to remortgage any earlier than this, to avoid any potential early repayment charges. Take a look at our article “Can You Remortgage Early?” to learn more about this.
Before going into why people may remortgage, it’s also important to understand the alternatives. For example, some homeowners may be looking to remortgage to create more space in their home. Whilst this could be an option, other homeowners may simply look to move home.
Additionally, there is a product transfer. Whereas a remortgage is typically taking out a mortgage with a new lender, a product transfer is switching onto a new deal with the same mortgage lender.
Lastly, if you are over the age of 55 and own a property that is worth at least £70,000, you may have the option of taking out an Equity Release plan. It is important that you speak with a qualified later life mortgage advisor to see if this is right for you.
To understand the features and risks of equity release and lifetime mortgages, ask for a personalised illustration.
A lifetime mortgage may impact the value of your estate and it could affect your entitlement to current and future means tested benefits. The loan plus accrued interest will repayable upon death or moving into long term care.
That being said, a remortgage is still absolutely a solid option and can help in many different ways. Below are the most popular reasons we hear of why a homeowner may look to remortgage their home.
One of the more commonly occurring instances of which a homeowner might look to remortgage their home, is so they can get a better mortgage term or mortgage deal.
When your introductory or fixed-period ends, you will switch onto your mortgage lenders Standard Variable Rate, which is typically a higher rate of interest and thus more costly.
It’s very rare that this will be a better option for you, so the vast majority will instead look to remortgage onto a much better deal. Using the equity that is in their property, they’ll likely have access to a lower loan to value deal, lowering their interest rates and overall costs.
If you would rather pay off your mortgage quicker instead, you may also have the option of keeping your monthly mortgage payments the same, whilst reducing the overall length of your term. This will also possibly save you money, as you will be paying less interest overall.
Every home will have an amount of equity sitting in it. This equity is the difference between the value of the property and the remaining mortgage balance. As the balance decreases, the amount of equity increases. If the value of the property increases, so too does the equity.
Homeowners may have the option of using some of this equity, via a remortgage to release equity, to use for a variety of means. Below are some sub-sections detailing why each of these might be a choice for some homeowners.
As time goes on, you may need to make some necessary changes to your home, especially if you would rather stay living there, as opposed to moving home. We often speak to customers who are looking to remortgage for home improvements.
Whether it’s to create a home extension in order to create some extra space, alter some of the existing rooms or make upgrades such as a kitchen remodel, it can be a great option for homeowners to make these changes.
Keep in mind that the majority of mortgage lenders will want to see quotes for the work that is to be carried out, if this is your goal during your remortgage.
Linking on to the latter point and tying into current events across the country (as of Mid-2022), a homeowner may be looking to spend now and save later by making energy saving alterations.
Installing solar panels has become popular for some as a source of their energy, as well as devices that can convert wind into energy. Insulating your walls, replacing doors and windows. These can be great options for those looking to not only be greener, but save some money.
Another reason why some may look to remortgage to release equity, is to partake in debt consolidation. Whilst a remortgage to consolidate debts can be a great option for some, it’s not a decision to be made lightly and we would recommend taking remortgage advice ahead of time.
A debt consolidation will typically see you combining your unsecured debts with your mortgage, into one manageable monthly outgoing. Though it will hopefully reduce your outgoings, it will typically cost more overall on interest, as it will extended across the duration of your term.
You should think carefully before securing other debts against your home. By adding your unsecured debts to your mortgage, which is secured on your home, you are potentially putting your home at risk if you cannot make the required repayments.
Although the total monthly cost of servicing your debt may have reduced, the total cost of repayment may still have risen as the term of your mortgage is longer than it may have taken to repay the debts originally.
Another reason that comes up quite frequently, as to why a homeowner may look to remortgage to release equity, is to provide a loved one with a gifted deposit. This occurs more often with parents, who will release a portion of their equity, to allow their child to get onto the property ladder.
This gifted deposit can either be used as all of or part of the deposit towards a home their child is looking to buy. You will also have to sign a form stating that this is a gift and not a loan, as well as evidence where the funds came from.
If you are heading towards the end-point of your introductory or fixed-period and are looking at remortgaging for either one of the options mentioned above, or even perhaps another reason altogether, please feel free to get in touch or book your free remortgage review today.
You’ll benefit from expert remortgage advice, provided to you by a trusted mortgage advisor. Using our experience and knowledge, we’ll look to help you find the best deal for what it is you are looking to achieve.