A remortgage application could give you more possibilities regarding your home, regardless of whether you’re experiencing a change in your life and want to finance home improvements or looking to secure an improved rate.
Although there are many advantages when remortgaging your home however, there are some negatives, so cautious consideration is needed. In this article we’ll walk you through some of the advantages and disadvantages of remortgaging so that you’re in the best position for making a decision.
Why do you need to refinance?
The simplest answer to “why to remortgage?” is that it’s about finding the most suitable mortgage that’s suitable for your present circumstances as well as the future. However, there’s more to consider in trying to decide whether it’s the best option.
Below, we’ve listed a few of the most common reasons why individuals choose to refinance their mortgages that can help you decide if it’s worth looking into your alternatives.
It’s important to remember that although some of these scenarios could be relevant to you, it’s crucial to consider whether it’s the best time to consider the mortgage remortgage. One of the primary aspects to think about when you’re deciding when to do it is whether the decision could result in a significant cost due to the fact that charges from both lenders could end up being more than the amount you’ll save over the long term. Always consult an agent to determine whether it’s worth refinancing now.
The tie-in period for you is coming to an end.
The tie-in time period that you have with your mortgage that you’re “locked into” in your loan, and you aren’t able to leave without having to pay an early repayment cost (ERC) towards your mortgage lender. But, after this time is over, you are able to generally remortgage to a different agreement without having to pay any ERCs.
The time to consider a mortgage at this point can frequently help reduce or even stop your mortgage payment from increasing. When the tie-in period is over and you’ll likely be reverted to the loan’s regular variable rate, or SVR (a rate determined by the lender which can fluctuate between both up and down) or their rates of reversion (their SVR, but with a slight discount). Most of the time, but it is not always the case, they will be fixed at a higher rate than the fixed rate you had previously and locking in a lower rate will guarantee that your monthly installment doesn’t increase.
You’d like to get a better deal
It is true that the UK mortgage market is extremely competitive, which means there’s a chance of finding some good offers available. If you find an offer that can cut the amount you pay each month by a significant amount it might be worth considering a remortgage option that can help you save money over the long run. It is recommended to speak with an agent to ensure that the deal you are considering is the right one for you because the products may offer more than just a good rate.
You’d like to switch to a different type of mortgage
Another reason for remortgaging could be when you’re looking to switch to a different kind of mortgage from the current one. There are several kinds available which include fixed rate discount, tracker, discount, and SVR mortgages, all with different characteristics that could benefit you (as as drawbacks to think about).
The most popular kind of loan is the fixed rate mortgage that fixes your interest rate for the tie-in period. Many individuals wait until the tie-in period is over and then refinance before they change to their lender’s SVR rates. However you can remortgage to a different type of mortgage. We suggest speaking with an agent if you’d like to know what other kinds of mortgages might be beneficial for you.
You’d like more flexibility
Do you think you’d be better off having additional flexibility in your mortgage? You could, for instance, discover that you’re in the situation to overpay, or be in a period where your income fluctuates. The option of remortgaging to a mortgage that offers more flexibility or access options that help you manage your finances like payment holidays or payment holidays, can be beneficial. Talk to an agent if you believe this could be the right choice for you.
Your situation has changed
If you were the first to shop around and made an application for mortgages, you’ll have been rated based on the information you provided to the lender at the time of the application. This could have affected your mortgage offer got. If your life circumstances have changed in the positive direction perhaps you have more money or you have paid off a outstanding debts — you may be in a position to get a better deal in the event that you decide to remortgage your home today.
There is a chance that you have experienced a change in circumstances in your life that may have changed your mortgage requirements for example, the move in of a partner, an employment change or a different life-changing occasion.
You’d like to cut down the term of your mortgage
If you’re able the cost of paying more that the amount you’re paying for your mortgage every month, you may want to think about refinancing your mortgage to reduce the term. If you are able to secure lower interest rates which means you’re reducing the amount interest you’ll be paying over the course of the term that your loan. Always consult a broker prior to making an important decision such as cutting down the length of your loan.
You’d like to sell equity
Remortgages are also an effective method of releasing equity. In simple terms, it is done by making the equity that you’ve earned in your home into cash, by increasing the amount of your loan when you refinance and thereby releasing funds to use to fund renovations to your home, purchasing cars and consolidating your debts.
In this scenario it’s best to consult a mortgage professional as you’ll be decreasing your equity, which could lead to adding more debt.
What are the advantages of refinancing?
If you think that you may be in a position refinance, it’s worth studying the advantages and disadvantages of doing it. You can then take a shrewd decision about the best option for your situation.
You can reduce your monthly payments
One of the major benefits of remortgaging is that you might be able obtain a better rate that will result in a lower monthly installment. If you research the market, or enlisting the assistance of broker, you might locate a loan that has a lower interest.
If you’ve been making monthly payments on your current mortgage for a long time it’s likely that you’ve built up equity, and reducing the loan-to value (LTV) that your mortgage has (the percentage of loan to property’s value). Simply put it means that you have a bigger share of your house that puts you in a better position as compared to when you first sought the mortgage. Therefore, the lenders could offer higher rates and terms on any remortgage offer you decide to pursue.
This benefit is especially relevant in the event that you are nearing the closing in your tie-in and will soon be transitioning to a SVR, which is a standard rate. In securing the new rate prior the end of your current rate, you will be able to avoid paying potentially greater monthly costs on an SVR which can be altered at any time at the discretion of the loan provider.
You are in control and feel confident
If you decide the option of fixing your interest rate through refinancing, you’ll be sure that your monthly payment will be the same for a predetermined duration of time. This could be beneficial when you’re nearing the conclusion of your initial fixed rate contract.
Because mortgages are likely to be among your largest monthly expenses, knowing the amount will allow you to plan your rest of the month keeping the amount in your mind. It can also help to be able to rest at ease since the outlook for the economy is uncertain.
It is possible to pay off your mortgage earlier
If you’ve experienced an increase in your the financial situation since you first taken out your mortgage, for example, receiving an uninvolved lump sum or receiving an increase in your salary, you might want to add more money into your mortgage so that you can be able to pay it off earlier.
The process of refinancing can provide several possibilities for making this happen. In one instance, you might be able reduce the term of your mortgage, meaning that you’ll pay more every month, but for a shorter time. This allows you to benefit from that extra cash and make mortgage-free at a lower rate.
Another method of putting more money towards an outstanding mortgage would be to pay more — basically, paying more than you are required to each month. There is a chance that your current contract has a limit on how much you can pay (many are) and you may be charged a penalty in the event that you overpay. If you refinance, you could search for a new deal with the intention of paying more in mind, and then locate one that is better or has no limit on the amount you can overpay.
It is possible to take out a loan
If you’re looking to take out cash for home improvement or for a car, vacation or other expense using a mortgage and releasing equity might be an alternative.
You could have accumulated equity through the process of paying off the current mortgage, as well as profited by an increase in the price of your house growing since you purchased it. It could be possible to let equity out and reduce the mortgage rate in one shot.
We suggest you seek some guidance from an expert financial or mortgage advisor prior to making the decision to take on a larger loan. It is possible that you can obtain an additional loan of your current mortgage, which is less expensive than remortgaging. It’s also a good idea to seek guidance on whether this kind of loan is suitable for you.
You might be able to consolidate your debt
If you’re in debt for a short period you may be able to get the money back by mortgage refinancing. This can be used to pay off the debt and consolidate the repayment into one payment per month.
Be aware that this could mean that you’ll end having to pay more interest total throughout your mortgage term as compared to the interest you’d pay for the short-term loans. In addition, you’ll have to let any lender know what you’re going to do with the funds that could impact the lender’s choice.
We recommend getting advice from an expert in debt or financial planning before making an important decision, because they might be able to assist you come up with a better option.
What are the disadvantages?
You might like the flexibility of SVR over a fixed rate
If you decide to refinance and then fix your rate, without switching to SVR, then you’ll be unable to take advantage of the flexibility variable rate mortgages offer.
If you’d like to pay overpayments every month SVR typically does not have limitations or penalties to do this, whereas fixed rate mortgages typically allow up to 10 percent overpayment. Another advantage that can be flexed of SVR mortgages is the fact that they do not tend to come with early repayment charges (ERCs) however you’ll likely have to pay a fee should you’re looking to break out of the fixed rate.
It is possible that you will have to cover certain expenses
There are a few fees associated with remortgaging. The most significant one to keep in mind will be the late repayment fee that is typically due in the event that you want to exit from your current mortgage in the early stages, and are not on an SVR or ERC-free loan. If you’re looking to refinance towards the end of your tie-in time, it’s usually possible to do so without penalty, thereby drastically reducing the cost.
ERCs aren’t the only fee you might be required to pay. For instance, your lender might charge things like the release of deeds fee as well as an fees for exit. There may also be other charges to pay when you join the new lender, for example, the valuation fee or legal fees, but they can be reduced as a reward to clients.
It’s also important to note that some remortgaging charges tend to be cheaper or waived if you’re switching products from one lender.
If you are deciding to take the next step in remortgaging it’s crucial to ensure that all expenses don’t amount to more than what you’ll save by using lower rates for the period of your new agreement. It is recommended to speak with an agent, who will help you decide what’s advantageous for you, and also assist in finding deals that will give you the most value.
You must apply to the lender from scratch
Are you applying for a remortgage through the same lender? They’ll consider you a new customer and you’ll be required to undergo the same steps that you did when you first made an application for an mortgage. This is obviously going to cause a bit of extra burden on you and add stress to the situation, however there are many other ramifications to take into consideration.
In the context of your situation Remortgaging with a different lender could be advantageous or negative. In a positive way when you’re in a better financial position than you were when you first took out an mortgage, you might be in a position to get a better deal. But, it also works in the opposite direction. In the event that you’re placed in more difficult situation, it could adversely affect the mortgage you’re offered when you’re assessed as a result, and so you could be better off staying in your current position.
There’s also additional work to do if you’ve been self-employed or have started business after you last applied for a mortgage and you decide to switch lenders. You’ll generally be required to submit two years of bank statements as well as any other documents requested.
Should you refinance?
After we’ve looked at the possibilities of when it might be beneficial to refinance and the advantages and disadvantages now is the time to think about whether or not to.
It is important to remember that the primary two goals of any remortgage is to reduce your costs and to find a deal that is compatible with your requirements. You must ensure that the savings you’re gaining exceed the cost of changing over the long haul and you’re in the right place at the right time and also do your research about the benefits of the new product.
We recommend that your next step be to talk to an agent. They can analyze your requirements in detail and offer suggestions on what your most suitable alternatives are, aswell in locating remortgage deals that meet your requirements.
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