Big savings or too much hassle? Find out if remortgaging makes financial sense for you.
Is your mortgage too expensive? According to a recent study, it might be. Remortgaging could save home-owning Brits as much as £2.78 billion.
But how do you decide if remortgaging is right for you or if you’re better off staying put?
When to remortgage (and when not to)
Remortgaging could make sense if you can get a better deal than what you currently have. This usually means one of two things:
- You can pay less interest and lower fees
- You get more flexibility. For example - a chance to make bigger overpayments
It's worth us mentioning that Bank of England interest rates are at a historic low right now, which is good news if you're looking to cut the amount you're paying in mortgage fees. It might make sense to lock in a fixed rate deal now to take advantage of the low rates, although with the current political uncertainty, interest rates are likely to change over the next few months. If you're willing to wait for rates to drop even lower (and risk them going up, too), then a tracker (or 'variable') mortgage could be right for you.
There are 4 main things to consider when it comes to remortgaging - your financial health, the size of your current mortgage, interest and fees and terms and conditions.
What’s your financial status?
When you apply for a mortgage, lenders look at your financial history, income and expenses. If your circumstances have changed, for example because you had children, you might not be able to get a better deal.
To get an idea of where you stand, check your credit report and score and use a mortgage affordability calculator.
If the results aren’t what you hoped for, it may be best not to remortgage just yet. However, it’s still worth monitoring your credit report and taking steps to improve your credit score. You could also review your monthly budget to try and cut down on expenses.
The size of your existing mortgage matters
Your lender can sell your home to make back your debt if you have trouble with your mortgage repayments. So, how much you owe on your mortgage compared to your home’s value can make a difference.
The less you need to borrow, the less risky you are for your lender, because it’s easier for them to get their money back if things go wrong. This means you’re unlikely to find a better deal if you haven’t paid off much of your mortgage or your home has decreased in value.
However, remortgaging isn’t usually worthwhile once your remaining debt drops below a certain threshold, either. The cost of remortgaging will probably be higher than any savings you stand to make. As well as this, some high street banks won’t accept new mortgages for less than £25,000.
Switching isn’t just about finding a lower interest rate
In theory, finding yourself a lower interest rate sounds great - you get pay less each month and will end up with a cheaper mortgage overall.
However, fees also affect your mortgage costs. In remortgaging, there are two types of fees:
- Early repayment fees, charged by your current lender
- Setup fees, which your new lender will charge to cover the cost of processing your application and setting up your mortgage
If what you stand to save on interest is greater than the fees, it’s worth remortgaging. But if the fees are higher than your savings, it might be better not to.
The fees tend to go down or no longer apply once the fixed period ends. This means you can avoid them by waiting out the initial term before you remortgage.
The fine print
Terms and conditions are important on any mortgage. But if you’re in the market to get a bit more flexibility on your mortgage, there are a couple of things in particular you should watch out for in the Ts & Cs.
Limits on how much you can overpay. This could mean you might not be able to pay off your mortgage as quickly as you’d hoped.
Exit fees. You may want to remortgage again at some point, so make sure these are not so high as to stop you from being able to switch the next time.
How to remortgage
Switching mortgage can seem nail-bitingly complex. But it’s actually more straightforward than getting a new one. There’s no property sale to complete this time, so there’s less paperwork and less stress for you.
Here’s how to do it:
1 - Check your property’s value
Your new lender will probably want to do their own valuation. However, having an idea beforehand means you’ll know what to expect. It could also give you some extra leverage as you negotiate.
2 - Do your research
Asking your lender if they’re offering new deals is a good place to start. Since you’re already a customer, they may be able to streamline the process and waive some fees.
However, it’s also worth comparing them with other deals. You can see which mortgages you might be eligible for on your ClearScore offers page. Alternatively, it may be worth asking an independent mortgage broker for advice. Make sure the broker bases their advice on the whole market, so you can get a complete picture.
3 - Do your sums
Once you find mortgages you may be eligible for, it’s time to do the maths. Remember to consider not just the interest rate but also exit and set up fees.
4 - Find a solicitor
You’ll need a solicitor to remove your current lender’s interest from your property title deed and register your new lender. Some remortgages may include a free legal service. However, you may feel more comfortable hiring someone you trust.
5 - Wait for the process to complete
Your new lender will repay your old mortgage, set up your new one and get the property title deed from your old lender on your behalf.