The Pros and Cons of Remortgaging Your Home
10th Oct 2022
If you’re a homeowner, you may be considering whether to remortgage your property. On the one hand, remortgaging can offer several advantages, such as reducing your monthly payments or releasing equity from your home. On the other hand, there are also a few potential disadvantages to consider, such as having to pay fees or ending up with a worse deal than your current mortgage.
So, what’s the right decision for you? In this article, we’ll weigh the pros and cons of remortgaging so that you can make an informed decision about whether it’s right for you.
Why should I remortgage?
You desire a better rate.
You may find a lower rate that could reduce your monthly payments, meaning you could pay less interest over the term of your mortgage. A better deal for you could also mean finding one that allows you to overpay or change your mortgage term.
Keep in mind, if you remortgage before your current deal ends, you may have to pay an early repayment charge (ERC) and other fees. If you decide to do this, make sure any potential savings outweigh the potential charges. Alternatively, you can avoid these fees by waiting until your current deal ends before remortgaging.
Your existing rate is about to end.
When your current mortgage rate expires, you’ll likely be transferred to your lender’s standard variable rate (SVR). This may be more expensive than your existing rate, resulting in an increase in your monthly mortgage payments.
You could switch mortgage rates with your existing lender or refinance to a different lender to avoid paying extra when your current mortgage rate expires. It’s a good idea to start researching your options at least 6 months beforehand, so your new deal or mortgage can start as your current one ends.
You wish to borrow additional money.
There are occasions in life when we need that extra cash injection. It may be an emergency, but your lender isn’t always open to giving you extra money. In this scenario, remortgaging with another provider may enable you to raise the money needed or get newer, cheaper rates than before. The new lender will quiz you about how you intend to spend their money, but home improvements usually get the green light, especially where they are essential and all other forms of borrowing have been discounted’.
The value of your home has increased.
If the value of your home has gone up, you could benefit from a lower loan-to-value (LTV) ratio. The LTV is your outstanding mortgage amount in relation to the value of the property, shown as a percentage.
Having a lower LTV could mean you are eligible for lower rates. You can contact your lender to find out what your LTV ratio currently is and, if it has changed, what new interest rate options are available to you. If your current lender is not able to offer a deal you want, you can then see what other lenders can provide.
Why shouldn’t I refinance?
Remortgaging is not suitable for everyone, and it may not be the right time for you. Here are some reasons why you might hold off on remortgaging.
If your circumstances have changed.
Many things have changed in the last few years, such as COVID/FURLOUGH, which has resulted in possible job losses, or you possibly choosing to become one of the 4.29 million self-employed workers in the United Kingdom*.
Problems could arise, though, due to lenders having strict regulations on proof of income. On average, lenders like to see at least two years of income if you are self-employed, not having this may mean new lenders are less willing to lend to you.
If this is the case, one option is to see what the best offers your current lender can provide you with. Moving with the same lender is called a product transfer.
At 3mc, we work with lenders that cater to the self-employed, so we can help guide you through the options.
You’ve experienced credit issues since getting your last mortgage.
To ensure that you can afford the payments while remortgaging, your new lender will request confirmation of your income and do a thorough credit check. If a lender notices that you are trustworthy when it comes to borrowing and repaying money, they are more likely to give you a mortgage.
Since getting your last mortgage, if you’ve had credit issues like missed payments, it could reflect negatively on your credit report and affect your credit score. Before applying, you might wish to wait and raise your credit score.
The remortgaging costs outweigh the savings.
You need to think carefully about remortgaging and consider all costs before deciding if remortgaging is financially worthwhile for you. For example, if you need to pay a large early repayment fee to leave your current deal, it may be worth waiting until your existing mortgage rate comes to an end.
Here at 3mc we can help guide you through your remortgage process and help find what’s right for your circumstances, so contact us today to find out more.
* As of July 2022 statisa.com