Mortgage rates have risen substantially over the past few months, so if you’re approaching the end of your existing mortgage deal, it can be difficult to know which way to turn next.
The Bank of England has raised the base rate several times in recent months, and with inflation remaining stubbornly high, further increases could be on the cards, creating more uncertainty for those approaching the end of their current deals.
Here, we explore some of the key questions you might want to consider when thinking about remortgaging.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
1. Is the timing right for you to remortgage?
Timing is everything when it comes to remortgaging as choosing to remortgage now or in a year’s time could mean the difference between spending or saving thousands of pounds.
Unfortunately, no one has a crystal ball that can tell us how high rates will go, and when they might start to fall again, and it’s not always easy to work out which remortgage deals you’ll be eligible for, particularly if your circumstances are complex or they’ve changed over recent years. Read more in our article Can I remortgage if I’m struggling financially?
When interest rates are rising, rushing to take advantage of competitive rates before they disappear can be very tempting, but it’s important to be aware of any charges you might face if you are leaving your existing mortgage early (we cover these in more detail below).
If you’re currently paying a higher mortgage rate than the deal you want to move to, then depending on the size of your mortgage and your individual circumstances, it could pay off in the long run to foot the bill for these charges if you’ll end up paying less overall. Unfortunately however, in most cases, people will be on much lower rates than those that will be available when their deals end.
If your lender has high charges for leaving your mortgage early, or you are happy to let your mortgage term run to its end, keeping an eye out for the best deals could still pay off. Most lenders will let you line up your next mortgage product up to six months in advance, so you can always secure your next rate now and then review it nearer the time your current deal is due to finish.
2. Have your financial circumstances changed?
Has the amount of money you have coming in or going out changed since you initially applied for your mortgage? Whether you’ve changed jobs, bought a new car on finance or are now in a relationship and sharing your home with a partner, all of these factors could have an impact on your remortgage application. If you know that there is a question mark over any area of your application, it’s worth spending some time trying to resolve this before you apply.
When you remortgage, your mortgage provider, whether you’ve chosen to stay with your existing lender or move to a new one, will carry out the same financial checks as when you first applied for your mortgage, as well as assessing you against their current affordability criteria. If your finances have changed for the better, this could mean that you can get a better deal than you did before, but if your income has gone down or you have more financial commitments than previously, you may not be able to get such a good deal this time round, or could even have your remortgage application refused. Your credit score can have a big impact on whether lenders see you as a viable borrower or not, so if yours isn’t looking great, focus on ways you might be able to improve it. Have a look at our article Seven steps to improve your credit score, for some tips on how to do this.
Unfortunately, for some, a change in circumstances may mean that they can’t remortgage and have to continue with their current lender, usually on their standard variable rate (SVR), essentially becoming mortgage prisoners. There are 47,000 households that are mortgage prisoners in the UK, so if you find yourself in this position, you aren’t alone. Find out more about your options if you’re a mortgage prisoner in our guide What help is there for mortgage prisoners?
3. Do you still want the same type of mortgage?
While many people choose to remortgage to a similar product to the one they already have, many also opt for a mortgage with different features in order to keep their costs down, whether that’s changing the term, type of mortgage, repayment method or the value of their mortgage. Asking yourself the following questions might help you decide if changing your mortgage could be better for you.
Do you want to change your mortgage term?
The length of your mortgage makes a difference to the value of your monthly payments, so before you remortgage, it’s worth asking yourself how much you want to, or can afford to, pay each month.
If you’ve found yourself struggling with your mortgage payments each month, extending the length of your mortgage term might make payments more affordable. On the other hand shortening your mortgage term will mean your payments will be higher, but will mean you can pay your mortgage off sooner.
Do you want to change how you repay your mortgage?
When you first took out your mortgage, you will have opted either for an interest-only or repayment product, but when you come to remortgage, you can change this.
If you currently have an interest-only mortgage, and you can afford higher monthly payments, you might want to change it to a repayment basis so that you know the capital will definitely be repaid at the end of the mortgage term. Alternatively, if you have a repayment mortgage, you might want to change part of it to an interest-only mortgage to make payments more affordable – although you’ll need a plan in place to pay back the capital.
Do you want to change the value of your mortgage?
Almost half of all people who remortgage do so to free up some extra cash. Property is one of the few investments that has consistently grown in value in most areas of the UK in recent years, so many people have a lot of money tied up in their homes. Increasing the value of your mortgage when you remortgage is a popular way of getting hold of some of this money. Bear in mind though, this will mean you are paying more each month, so it’s not a decision to make lightly.
Do you want to move to a different type of mortgage?
Many people stick with fixed rate mortgages every time they remortgage, because of the budgeting certainty they can provide. However, depending on your circumstances, it may be worth considering variable options such as tracker or discounted rate mortgages too. Bear in mind though, that you must be comfortable accepting the fact your mortgage payments could rise. Find out more in our guide Should I go for a fixed or variable rate mortgage?
4. How much will remortgaging cost you?
There is nearly always an upfront cost involved in remortgaging, which can range from hundreds to thousands of pounds, depending on your property and situation, so it’s worth working out in advance how much you might have to pay.
Some of the key charges you might need to consider include:
Early Repayment Charge (ERC)
If you want to remortgage to a different deal while you are still within the term of your existing mortgage, you might need to pay an ERC, which is usually 1-5% of the value of your outstanding mortgage balance, depending on how long your deal has left to run.
An early repayment charge may not always apply – for example – you won’t usually have to pay one if you’re on your lender’s standard variable rate and want to redeem your mortgage – but it’s important to check with your lender.
If you are looking at remortgaging and are currently tied into your existing deal, it’s a good idea to seek professional advice to help you decide whether it’s worth waiting until early repayment charges no longer apply.
Exit fee
If you remortgage from one lender to another, effectively fully paying off your mortgage with your initial lender, you might need to pay an exit fee or a closure fee. This fee will typically cost you anything between £75-£300 and is usually charged to cover the administration of your account, and the work associated with closing it.
You won’t always need to pay an exit fee as this is sometimes covered by the mortgage account fee, but this varies from lender to lender, so again it’s best to check your mortgage agreement.
Deeds release fee
Another charge you might face when remortgaging is a deeds release fee, which is another administration fee which covers the cost of transferring the title deed of your property to your new lender. This fee can cost anywhere from £50-£300, but will vary from lender to lender.
Mortgage costs
On top of these fees that organise your movement from one mortgage product to another, you will usually also need to consider how much you might need to pay in mortgage fees, which depending on your lender and your property could add up to thousands. You can read more about the fees and charges you might have to pay for your remortgage in our articles How much does it cost to remortgage? and Mortgage fees and costs explained.
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