Pros and cons of remortgaging your home
With talk of a possible rise in interest rates you may be thinking about shopping around for a better mortgage deal. Helen Harris, residential property expert with Forrester Sylvester Mackett answers some of your questions about remortgaging your home.
What is remortgaging?
Remortgaging involves taking out a new mortgage and repaying your existing one. With a remortgage, you do not usually move house. You simply transfer the debt on your existing mortgage to a new lender, with your home continuing to act as security.
What are the advantages and disadvantages of remortgaging?
Remortgaging can allow you to switch to a mortgage product that is more attractive. This could be because it is at a lower rate of interest or better suited to your needs. For example, you may want to spread repayment over a longer term, to switch to a fixed rate or to borrow a larger sum against an increase in the value of your home.
However, you need to balance any benefits against the cost of remortgaging. Your new lender may charge administrative fees or set-up costs. You may have to pay for a revaluation of your property and there may be associated conveyancing costs. Depending on your current mortgage arrangements, your existing lender may also charge a fee if you repay your mortgage early. This is often called an ‘early redemption penalty’ and can make remortgaging a much less attractive option.
When should I consider remortgaging?
It makes sense to keep your mortgage under review. However, there are also some specific trigger points when you should actively consider remortgaging. For example, a change in your financial circumstances or a rise in your lender’s mortgage interest rates.
Many of the most competitive interest rates only last for a relatively short period of between two and five years. At the end of that period they revert to the lender’s standard variable rate, which is often significantly higher. If your current mortgage deal is coming to an end, it could pay to start looking around a couple of months ahead. Other mortgages only impose an early redemption penalty in the first few years, so the expiry of that initial period can be another good opportunity to remortgage.
Is remortgaging suitable for everyone?
No. A lot will depend upon your personal circumstances. You may experience difficulties remortgaging if:
- you have very little equity in your home;
- you are close to retirement age;
- the value of your home has gone down; or
- you have had credit problems since taking on your current mortgage.
Independent financial advice should always be taken.
What types of mortgage are available?
In theory, the same types of arrangements are available for remortgaging as for conventional mortgages, namely:
- capital repayment;
- fixed rate;
- discounted rate;
- capped; and
- off-set mortgages.
If you currently have an interest-only mortgage, you may find getting another interest-only mortgage difficult, unless you have a lot of equity in your home or a credible plan for how you will repay the capital.
What are the alternatives to remortgaging?
Do not forget to approach your existing lender first. They are unlikely to want to lose you and may be able to offer you better terms than your current mortgage, potentially saving you hefty early exit and set-up fees.
If you are looking to increase your borrowing, your existing lender may be prepared to give you a further advance. Other lenders may also be prepared to loan you more money and to take a second mortgage over your property as security. However, your first lender may need to agree to this and you could end up paying a higher rate of interest.
I am self-employed, will I be able to remortgage?
Self-employment can make remortgaging a lot more difficult, particularly as UK lenders can no longer offer self-certificated mortgages. You will usually need to show at least two years’ proof of income in the form of audited accounts, although some lenders will accept tax returns as an alternative.
Is there anything else I need to consider?
Yes. Your lender will almost certainly require a solicitor to confirm to them that you own the property to be remortgaged and it is worth more than the amount they are being asked to lend you. If the remortgage goes ahead, you should also think about the impact this may have on the amount of money you will have available to pass on in your Will and whether your Will needs updating to reflect this.
Most lenders have a panel of approved solicitors and you should check that your choice of solicitor is acceptable to your lender early on. If not, your lender may need to appoint a second solicitor, which may incur additional fees and delay the process. Forrester Sylvester Mackett are on all the major lender panels, so if you instruct us you can be sure your remortgage will be handled by an experienced conveyancer who understands your lenders’ requirements.