Reasons for remortgaging
Remortgaging your home can be a sensible decision for many reasons:
- Your mortgage is likely to be your biggest expense, so finding an alternative mortgage deal with a lower interest rate could save you a significant amount of money.
- If you have other loans, it might also be convenient to consolidate your borrowing so that there’s just one lender to deal with.
- Some people seek a new mortgage deal if their financial circumstances change; perhaps you’ve had a pay rise and would like to pay your mortgage off more quickly, or you might need the flexibility to miss a month’s payment here and there when times are tight. If you’re bound by strict repayment terms, this may not be possible with your current deal.
- You might want a remortgage to release equity in your home, to pay for home improvements or other expenses.
- Your mortgage deal may be unsustainable due to the economic climate. If you have an interest-only or endowment mortgage, for example, the money you put by to pay off your debt at the end of the mortgage needs to earn enough interest: if it’s not, it could be wise to switch to a repayment mortgage instead.
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Things to consider
Switching to a new mortgage deal isn’t always straightforward, and you may incur exit fees and other financial penalties by opting out of your existing mortgage. It’s important to carefully weigh up the costs and savings involved, so that you can be sure a remortgage is the best course of action.
Even if you’re unhappy with the interest rates you’re currently paying, it may be difficult to get a better deal. For example:
- A remortgage valuation will tell you the current value of your property. If the value of your home has dropped since you took out your first mortgage, you may need to borrow more than you did originally. If you’re in negative equity, remortgaging may not always be possible.
- A poor credit history – for example, if you’ve missed repayments on your existing mortgage – will make new lenders less willing to take you on.
- If your employment status has changed since you took out your mortgage and you now earn less, are self-employed or unemployed, you may not find a lender.
- If you need to borrow over 90% of the value of your property, it’s unlikely that you’ll find a competitive deal that will save you money.
- The financial penalties may mean remortgaging simply isn’t worthwhile, especially if there’s not much left to pay off.
- If you want to borrow extra money for something other than your home, adding it to your mortgage could mean you pay it off over a longer period of time – meaning that the overall amount payable will be higher.