Remortgage

Remortgage: what is it?

• Do you wish to save pounds by changing mortgage provider for a mortgage with lower rates?
• Do you need to consolidate your debts, in order to pay for that important purchase?
• Is your discounted period going to end soon?

If you've answered yes to some of these questions, maybe it's now the time to remortgage; that is, to switch mortgage provider for one that offers a deal that better fit your current situation.

Remortgage: when do I need it?

Typically, you should think about remortgaging whenever you are approaching the end of the current fixed, capped, or discounted rate period. At the end of this period, you will be switched to the Standard Variable Rate (SVR) of your lender, which will in the majority of cases significantly increase your repayments. For most lenders, the SVR is 2% higher than other deals on the market. This will increase monthly repayment by £200 in average, once the discounted rate period comes to an end. In order to avoid this unfortunate situation, it is usually a good approach to plan ahead and get a good remortgage deal before you end up paying the SVR.

In order to benefit from a remortgage deal, it is not necessary to be on a discounted mortgage deal. If interest rates are low, maybe you should consider to change a variable mortgage deal to a fixed one.

You may want to have more money available so that you can pay for things such as home improvements. If you decide to take a bigger mortgage, you can release some of your equity. By doing so you will have money to fund that special purchase. Using this method, you can consolidate your debt, so that you end up with only one payment per month. Mortgages normally have better rates than loans, and as a result of this, you can save a large amount of money. You have to be careful though. You may end up with a better rate, but you can also spend a lot of money on interest if you go for a longer mortgage term. Using such a technique of debt consolidation puts your home at risk if you cannot repay the loan. So make sure you have money available to pay make your monthly payments.

Remortgages - Advantages and disadvantages

Pros

• By avoiding your lender's SVR, you can save in average £200 per month.
• You could end up with a single monthly repayment to consolidate your debts.
• You could switch for a mortgage deal better suited to your current circumstances.

Cons

• Fees can be very high.
• It takes time and effort to remortgage.

Does it cost a lot to remortgage?

You have to pay in average £1,100 each time you remortgage.

Why does it cost so much?

There are a lot of different fees for each remortgage such as exit fees, legal cost, arrangement fees, valuation fees or repayment charges (ERCs).

The main fee you have to pay is typically the early repayment charge. The ERC is the fee you will have to pay if you switch your mortgage before the end of the agreed term. Normally, the early repayment charge applies if your mortgage is a capped rate mortgage, fixed rate mortgage or discount mortgage. These fees can be significant, so check the fine prints on your mortgage details very carefully before you go ahead and switch mortgage lender. For some cases your lender may waive some of these fees, so it's always a good idea to check if there's a way to avoid some of the fees.

Is remortgaging worth the cost?

There is no straight answer. You need to consider your existing mortgage and the new mortgage deal you're interested in. First you need is to have a look at your existing mortgage and make a note of the monthly repayments. Then you need to take a look at the remortgage deal and find out the total for the monthly repayments. The final step is to sum all the fees involved in switching between mortgages deals. It the new mortgage deal is less expensive than your current deal, then remortgaging is a very good option.

If you are about to end up on the lender's SVR with your existing mortgage, it is usually a good time to remortgage as the SVR is usually higher than other available mortgage rates on the market. More than a third of all mortgages deals are remortgages.

Finding information about disadvantages and avantages of remortgaging can be difficult, especially when considering the amount of fees . As a result of this it is important to get some professional advice and get in touch with an adviser that can explain the different steps involved when switching mortgage. A mortgage adviser can shed some light on the pros and cons for your particular circumstances. They also have access to hundreds of different remortgage deals and can make a recommendation for the best one for your particular situation.

Should I change mortgage lender?

Have a look around at what's available if you are considering remortgaging. If you find a deal more interesting than your current mortgage deal, talk to your lender and tell them you're considering switching to another lender. Mortgage providers do not wish to lose their current customers, so they may offer you a bonus of some sort.

If you stay with your current lender, the process is not difficult as the only thing to do is to fill out a form. If you decide to use a new provider, you will have to complete an application process, which can be time consuming and be expensive.