Can you remortgage early?
Remortgaging is the process of switching your existing mortgage deal to a new one with a different lender or changing the terms of your mortgage with the same lender. Now typically this is done when your existing mortgage deal is up for renewal however there are circumstances where you might be thinking about exiting your existing deal early. In this article, we explore the implications of exiting your deal early and help you think about whether is beneficial to do so.
Early repayment charges
The first thing to understand is that if you exit your existing deal early then you may be subject to early repayment charges. Whether can you remortgage early, and the amount you get charged, really depends on the terms and conditions associated with the mortgage product you selected. The mortgage offer document will outline the early repayment restrictions. Typically exit fees range from 1% to 5% of the amount you overpay.
Early repayment charges are generally quite large so if you’re looking to exit your deal early, you really need to consider whether the cost of your Early Repayment Charges outweigh the benefits of switching if you’re not careful, you might find yourself worse off than before.
Reasons homeowners exit the deal early
It’s not often it makes sense to pay exit fees but here are often two common reasons why one may do so.
1. Found a better deal – if you have found another mortgage deal that you are eligible for which is better than the one you are currently on, even after paying ERCs. For example, if interest rates reduce significantly over a short time period, it may make financial sense to lock in a deal with a lower rate with either the same lender or a new lender.
2. Home value has significantly increased – if your home value has gone up significantly and you’re now in a lower loan-to-value band (LTV), then this could justify paying an ERC. LTV is the amount of equity you hold in your property compared to the loan value and is what lenders use to determine what deal you are eligible for. The lower your LTV within a certain threshold, the better deals you can get access to. You can expect to get better deals if you fall below one of these typical thresholds - 90%, 85%, 80%, 75%, or 60%. Again, it’s important to do the maths before switching products early.
How Sprive can help?
One of the benefits of remortgaging with Sprive via the app is s that we’re able to scan the market every day to help you find a better deal. Since you’ve switched mortgage deals with us, we’re able to crunch the numbers and calculate if you’re likely to be financially better off paying off an early repayment charge given the deals that are available to you in the market. We’ll then link you to a vetted mortgage advisor who will confirm the numbers and help you switch should you decide to proceed.
Early Repayment Calculator: Benefits and Functionality
An early repayment calculator is a valuable tool for homeowners considering remortgaging or repaying their mortgage early. It helps individuals assess the financial implications of making early repayments, including potential savings and costs. By utilizing an early repayment calculator, borrowers can make informed decisions about their mortgage and explore various scenarios before committing to any changes. Here's an overview of why early repayment calculators are useful and how they work.
Benefits of an Early Repayment Calculator:
Financial Assessment: An early repayment calculator allows borrowers to evaluate the potential financial impact of making additional mortgage payments or remortgaging early. It provides clarity on the amount of money that can be saved over the long term and helps determine whether the benefits outweigh the associated costs.
Cost Comparison: By inputting different repayment amounts and scenarios into the calculator, borrowers can compare the cost of continuing with their current mortgage deal against the cost of early repayment or switching to a new deal. This empowers them to make well-informed decisions based on accurate financial projections.
Savings Estimation: The calculator helps homeowners estimate the potential savings they could achieve by making early repayments. It factors in variables such as interest rates, loan terms, outstanding mortgage balance, and potential fees. This enables borrowers to understand how much they can reduce their total interest payments and shorten the mortgage term.
Decision Making: Armed with accurate information from the calculator, borrowers can make sound decisions about remortgaging or repaying their mortgage early. They can weigh the benefits against the costs, considering factors such as potential interest rate changes, fees, and their own financial circumstances.
Functionality of an Early Repayment Calculator:
Functionality of an Early Repayment Calculator:
Input Variables:
The calculator requires specific input variables, including the outstanding mortgage balance, current interest rate, remaining term, and any potential fees associated with early repayment or remortgaging. Users may also have the option to input different interest rate scenarios for comparison purposes.
Calculation Methods:
The calculator utilizes mathematical formulas to calculate the potential savings from early repayment or remortgaging. It considers factors such as the reduction in interest payments, changes in the remaining term, and any applicable fees or charges.
Results and Analysis:
Once the user provides the necessary inputs, the calculator generates comprehensive results and analysis. This may include the total amount saved over the remaining mortgage term, the new monthly repayment amount, the shortened mortgage term, and any associated costs or fees. Some calculators may also provide graphical representations of the data to enhance understanding.
Scenario Testing:
Early repayment calculators often allow users to test different scenarios by adjusting repayment amounts, interest rates, or mortgage terms. This flexibility enables borrowers to explore various options and compare the outcomes, empowering them to make more informed decisions.
Early repayment calculators are useful tools that assist homeowners in assessing the financial impact of making early mortgage repayments or remortgaging. They provide valuable insights into potential savings, costs, and the overall financial feasibility of different scenarios. By utilizing an early repayment calculator, borrowers can make informed decisions about their mortgage, ultimately saving money and achieving their financial goals.
Here are some additional key factors to consider when looking at your current mortgage and deciding whether to remortgage early.
Fixed Rate Mortgage: If you have a fixed-rate mortgage, it means that your interest rate remains the same for a specified period, usually between two to five years. However, if you want to remortgage early and secure a new mortgage, you may need to pay an early repayment charge (ERC) to your lender, which can be a percentage of your outstanding mortgage balance. It is essential to check your mortgage agreement to see what your ERC would be and whether it is worth remortgaging early.
Lender: When considering whether to remortgage early, it is essential to research and compare different lenders' offers. Some lenders may allow early repayment without an ERC, while others may charge a fee. Additionally, some lenders may have specific eligibility criteria, such as a minimum income requirement or credit score.
Interest: Your current mortgage interest rate is a crucial factor when considering remortgaging early. If you are on a high-interest rate, you may benefit from remortgaging to a lower-interest-rate deal. However, you should consider any fees associated with remortgaging, such as arrangement or valuation fees, to ensure that the new deal is more cost-effective in the long run.
Rates: Fixed-rate mortgages offer the security of knowing exactly how much you will pay each month, whereas variable-rate mortgages can fluctuate depending on market conditions. If you are on a variable-rate mortgage and are worried about potential interest rate increases, you may consider remortgaging to a fixed-rate deal.
Mortgage Deal: When searching for a remortgage deal, it is essential to compare mortgage rates and fees from different lenders carefully. Some mortgage lenders may offer deals that waive arrangement fees or offer cashback incentives, which may make remortgaging early more financially viable.
Equity: If your property has increased in value since you took out your mortgage, you may be able to release equity by remortgaging early. This can provide extra funds for home improvements or other expenses. However, it is essential to consider the overall cost of remortgaging, including any additional fees or charges.
Interest Rate: When remortgaging early, it is crucial to consider the interest rate you will pay on the new mortgage deal. If the new interest rate is significantly lower than your existing rate, you may save money on your monthly mortgage payments. However, if the new interest rate is higher, you may end up paying more over the long term.
In conclusion, remortgaging early can be a beneficial option for homeowners looking to save money on their mortgage payments or release equity. However, it is crucial to consider all the factors, including early repayment charges, mortgage lender fees, interest rates, and overall costs. By doing your research and comparing different deals, you can make an informed decision about whether remortgaging early and securing a new mortgage is the right option for you.
Frequently Asked Questions
1. Can I remortgage early on a fixed rate?
Yes, you can leave your fixed-rate mortgage early and switch to another lender. However, it's important to consider whether the total sum of your Early Repayment Charges, exit fees, and other rates outweighs the benefits of switching. Be cautious as you may find yourself in a worse financial position than before.
2. Can I remortgage early with the same lender?
Yes, you can remortgage early with the same lender, often referred to as a "product transfer." If you decide to come out of your deal early, you may be subject to Early Repayment Charges, similar to switching to a new lender. Sometimes, if you are within the last few months of your current deal, your lender might allow you to start your new deal early without applying the Early Repayment Charge. However, keep in mind that you would be limited to the mortgage products offered by your current lender, which may not be the best option for your specific circumstances.
3. When should I consider remortgaging?
As a general guideline, it's advisable to start exploring available deals up to six months before the end of your mortgage deal. This is particularly important if you are concerned about potential rate increases in the coming months.
Many remortgage offers remain valid for three to six months from the date they are issued. This means that even if you have six months remaining on your current deal, you can apply for a new mortgage now to secure a favorable rate. If your application is accepted, you can arrange with the lender for it to begin as soon as your current deal concludes.
Planning in advance offers the advantage of seamlessly transitioning from one deal to another, without being placed on your lender's standard variable rate. Standard variable rates often tend to be higher than other mortgage rates, so the sooner you switch to a different deal, the more potential savings you can achieve.
Another significant benefit is the ability to lock in a specific rate in advance. This provides peace of mind, ensuring that even if rates start to increase before your current deal ends, you have already secured the rate you will be moving onto.
Keep in mind that while forward planning is beneficial, the further away you are from the end of your deal, the more limited your choice of lender might be, which could impact the availability of deals for you.
4. Should I remortgage early?
If you're considering remortgaging early, it is advisable to seek advice and assistance from a mortgage broker. They are familiar with the offer periods of various lenders and can recommend deals that are likely to suit your individual circumstances. Their expertise can help you make an informed decision based on your specific needs.
