Why should I remortgage? Pros and cons
If you’re looking to get a better mortgage deal, release equity, or make your repayments more affordable, you may be considering remortgaging.
And with interest rates rising in the UK, more and more people have been looking at fixing their mortgage rate to protect against future price hikes.
In this guide, we explain when remortgaging your home could be the right financial move, the pros and cons, and the process and costs.
What is a remortgage?
The term ‘remortgage’ refers to the process of transferring the mortgage on your property from one product to another. You can remortgage with your current lender, or find a deal with a new lender.
You can also choose to release equity from your home by remortgaging at a higher loan to value (LTV) – which is your loan displayed as a percentage of your property’s value. The additional capital you raise from doing this can improve your financial flexibility – you could put it towards renovating your property or helping a family member buy their first home, for example.
If your current mortgage term is coming to an end, your lender will automatically put you on their standard variable rate (SVR). SVR rates are much higher than normal variable or fixed rate mortgage deals. So, when your current mortgage term is up, we recommend at least reviewing your options and considering remortgaging to avoid paying an SVR.
How does remortgaging work?
Finding a deal
When considering how to remortgage your property, the first step is to research the range of remortgaging deals currently available on the market. Getting in touch with a specialist mortgage broker before committing to a decision is a good way to ensure you’re getting a good deal. They possess expert knowledge of the mortgage market and can help find the best solution for your situation.
How to apply
In most cases, remortgaging is easier than applying for a new mortgage from scratch. However, you should have all your documentation to hand to make the application process as quick and smooth as possible. This can include personal ID, payslips, bank statements and tax returns from the past few years.
Your new lender will also want to check your credit score before they offer you a remortgage - it’s worth checking your credit score before you apply and updating your details if there are any errors on your credit report.
Our guide to improving your chances of getting a mortgage includes our top tips on how to check and improve your credit score.
The arrangement fees for finalising your remortgage can include:
- Booking and arrangement fees for securing your remortgage
- Account and admin fees for drafting your remortgage
- Legal and conveyancing fees
- Property valuation fees
Also, make sure to check if your current mortgage has any exit fees and early repayment charges (ERC) attached to it. ERCs can be expensive and the costs could outweigh the savings you’d make on remortgaging, so if you’re unsure, speak to a mortgage adviser.
If your financial situation is complex, having a good mortgage broker by your side can help you understand remortgaging in greater depth while speeding up the process.
Potential benefits of remortgaging
Better interest rates
Remortgaging can allow you to take advantage of low interest rates to secure a better deal than your current one.
In recent years, interest rates have been historically low due to the COVID-19 pandemic. This has contributed to the increased popularity of remortgaging among homeowners and commercial property owners alike.
Many people remortgage to take advantage of lower interest rates than their current mortgage deal. If you predict a rise in interest rates in the coming years, you may wish to arrange a new deal through a remortgage.
If you’ve owned your property for a substantial period of time, it may have risen in value since you bought it, due to:
- A greater demand for housing
- Improved condition of your property
- Property upgrades
- Local amenities and developments
If your house has gained value, you could be in a lower loan-to-value (LTV) band if you remortgage and be eligible to borrow more at a lower interest rate. This is because the value of your loan will be smaller compared to the value of your property, because it’s risen in value.
If you think this might be the case, you can speak to one of our expert mortgage advisors for more information.
You may want to release equityfrom your home for a variety of reasons, such as to finance repairs, home improvements, an extension, or perhaps to purchase another property.
Loyalty to your lender doesn’t always get you the best deal in the mortgage world and switching lenders could help you release equity at a cheaper rate. You may be asked for evidence by your new lender about why you’re borrowing more money, particularly if you’re looking to finance a development project.
You may be considering using equityreleased from a remortgage to pay off your existing debts. Remortgaging can be a good method for consolidating debt, as it can be cheaper and more convenient to roll up your debts into a mortgage plan. However, this process requires careful consideration and expert advice from a good mortgage advisor.
You want more financial flexibility
Lifestyle changes, such as a new family member, new job, or a career break requiring ‘payment holidays’, can affect your satisfaction with your current mortgage plan. Maybe you’ve recently received a pay rise and want to start paying off more of your mortgage, but your current lender won’t let you make overpayments, for example.
A new mortgage plan might be more accommodating for your current lifestyle and provide you with more flexibility than your current deal. Flexible remortgagesenable you to make monthly underpayments and overpayments depending on the status of your income.
Possible drawbacks of remortgaging
Slower than a short-term loan
On average, the remortgaging process can take anywhere between four to eight weeks to complete. If you’re looking to pay an immediate deposit for a new house, for example, you may not have the time to remortgage your house amidst the time restraints of a bidding contest.
Should you need to access more immediate funds to raise capital, such as for a deposit on a new property, it may be worth looking into a short-term loan like a bridging loan. You can often acquire a short-term bridging loan within a week (with higher interest rates), that you typically pay back within a year. Although bridging loan interest rates are higher than mortgages, they’re lower than personal loans because they’re secured against your property.
Costs and fees
It’s always important to weigh up the benefits of remortgaging against the costs before you make your decision. On top of monthly repayments, the arrangement fees and possible early repayment charges can quickly add up. Additionally, you’ll need a stable income to apply for, and sustain, a remortgage deal.
If you’re now earning less than you did when you took out your first mortgage, you might not be able to get a better deal. Or, if you’re now self employed but don’t yet have 2 years of tax returns, it could complicate the process further.
Is remortgaging the right decision for you?
While you decide whether or not a remortgage is right for you, consider any family, career, or lifestyle plans which may benefit from the capital you could gain through a remortgage in the future. Once you’ve used the equity you’ve built up in your home, you won’t be able to use it for anything else.
Related: View our guide to remortgaging
Remortgaging is a significant financial decision, so it’s common to seek independent advice from an expert mortgage broker.
At Clifton Private Finance, our specialist mortgage advisors can help you to evaluate whether remortgaging is a cost-effective and prudent step for you to take. By analysing your current financial circumstances, our team can match you with the best lender for the most competitive remortgage deal.
Whether you just have some general questions about the process or you want to discuss your personal situation, book a free and no obligation telephone consultation at a time that suits you:
Or call us now on: 0117 959 5054