What is a remortgage?

A remortgage is a second loan that is secured against your property, just like the original mortgage you used to buy the house in the first place. There are two reasons to get a remortgage (or often a combination of the two):

To replace your existing mortgage with one that is a better deal
To obtain extra borrowing at a low rate secured against your home

Often a mortgage is taken out with a period of low fixed rate and when this period comes to an end it can really pay to re-evaluate the situation and consider a replacement remortgage. Either that, or your circumstances may have improved since the original mortgage was taken out and your improved credit and affordability gives you access to a superior deal that may have been out of reach early on.

However, jumping on a remortgage is not always the best options. As with anything, there are pros and cons of switching your mortgage.

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Saving money – how much can a remortgage save you?

The primary reason for reassessing your mortgage situation is because there’s the opportunity to save a substantial amount of money. Even a small change in interest rate can save thousands of pounds over a few years.

As a first step, why not use our remortgaging calculator to see just how much you could save!

Reason for remortgage #1 – The end of a deal

Most mortgages have an early deal rate, usually between two and five years. During this time your mortgage is ultra-competitive, with incredible fixed rates or impressive discounts and tracking.

The problem with great introductory deals is that the time will come when you are no longer a new customer to the provider and the deal ends to be replaced by a standard variable rate (SVR). It’s unlikely that the SVR is as impressive as your initial deal, and other cheaper rates will be out there tempting you.

This is a prime reason for remortgaging. A different provider has plenty of reason to entice you away from your current mortgage and the offers you see for a remortgage are likely to be far more cost effective than just sitting back and allowing your current mortgage to run its course.

You may be surprised at how soon you can remortgage and the advantages you will gain by doing so.

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Reason against remortgage #1 – The early repayment charge

Part of the terms of your current mortgage will include an early repayment charge, especially during any early incentive period. This isn’t an insignificant fee and will be applied if you pay back the mortgage in full before the end of the term – which, of course, you are planning to do as part of your remortgage.

This early repayment fee should be taken into account when calculating the real benefit of switching mortgage providers and if it is larger than the savings that will be made by making the change, it’s probably best to avoid doing so until the time is right.

Reason for remortgage #2 – Your home is worth a lot more than it was

One of the largest criteria for getting a good mortgage deal is the loan-to-value (LTV) ratio. When you first came up with your deposit, you probably tried to make this as large as possible to lower that LTV rate and get a better deal.

If the value of your home has increased substantially, then the LTV ratio on a new remortgage is going to be heavily in your favour, and this alone could make for a far better deal.

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Reason against remortgage #2 – Your mortgage debt is small

Any savings on your mortgage because of an improved deal on the interest rate become less significant the smaller the amount of money you have left to repay. After all, a 1% saving on £500,000 is ten times the same percentage saving on £50,000!

It could realistically be that with a small remaining mortgage balance, the level of fees are (while reasonable) simply above the amount you will be saving. In these cases, you’ll still be better off at a higher interest rate and there’s no real incentive to make the switch.

Reason for remortgage #3 – You want to be able to overpay

If your current lender doesn’t allow any additional over-payments then you may be looking to switch to a provider who does – giving you the extra flexibility that will enable you to shave years off your mortgage (and save on years’ worth of interest).

Sometimes remortgaging to a provider who offers easy over-payments is value enough to make the process worthwhile – and if you get a better rate as well, that’s a bonus!

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Reason against remortgage #3 – Your affordability or credit has suffered in the meantime

Even though you would think that taking out a replacement mortgage would mean you wouldn’t suffer from any in-depth credit checks (after all, you’ve shown that you can make the payment on your current mortgage for years and this one is cheaper!), you’d be wrong.

Any new lender is going to go through the same level of delving into your credit history and looking at your affordability as your first provider did when you applied for your initial mortgage – and while you worked hard for months and even years to make sure you were a good prospect that first time, have you thought about doing the same here?

Often once the initial mortgage is successfully done and the house bought, the strict level of fiscal responsibility that first-time buyers have gone through to make it through that first step gets relaxed and a second run of affordability checks and credit scoring would mean they fail an application. If this is you then you may want to hold off on a remortgage, or at least, plan for a future one after a similar period of careful money management.

One situation that doesn’t require the deep level of credit and affordability checking that you might want to ignore is when you apply for a remortgage with the same lender as your original mortgage – they may be willing to simply move you onto one of their other plans without any hassle, so it’s always worth looking at.

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Reason for remortgage #4 – You want to borrow more money

If you are looking for a larger loan, a remortgage may give you the opportunity to get one at a lower interest rate than an unsecured personal loan. This is especially useful if you are looking to consolidate other debts or for something large, such as a car purchase or home improvements.

The lender will want to know the reasons for your loan and may go into more detail than a standard unsecured personal loan application. It’s important to them that the reason for the extended borrowing won’t put you at risk of making future payments – for example, most mortgage lenders aren’t keen on lending money for you to start a new business venture as it may well fail and leave you at risk of not only paying back the additional credit, but also put you in the position of struggling with the main mortgage.

Conversely, a remortgage that intends to add value to the property – such as for an extension or general refurbishment – is going to be far easier to convince a lender about.

It’s worth remembering that though the interest rate on a remortgage will be lower than an unsecured personal loan or specific vehicle finance, it also has a longer repayment term associated with it and may end up more expensive in the long term. You will have to make a decision whether an easier but longer repayment plan is better than a shorter but larger monthly repayment.

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Reason against remortgage #4 – Your current mortgage is good enough!

If you have a really good mortgage already, then why change it?! If you got your original mortgage through us at The Mortgage Hut then it will have been the best possible deal available for you, so the chances are it still is! Make sure you talk with one of our advisors at length so that we can help you make the right decision.

It’s important to us that we provide the very best service, and that includes telling you just when a new mortgage is the wrong idea! Why not give us a call and we will discuss the options with you – or simply fill in our contact form to have one of our team call you back at a convenient time.

If you want to know how a remortgage might help you, you can also use our online remortgaging calculator tool – its simple to use and only takes a minute.