Reasons to remortgage your home in 2023
Remortgaging refers to the process of switching from one mortgage lender to another or changing the terms of your existing mortgage with your existing lender. In simple terms, it means taking out a new mortgage to pay off the existing mortgage deal.
People remortgage for various reasons, including securing better interest rates across the mortgage market, accessing equity, or switching to a different type of mortgage (for example, away from a fixed rate deal to one with the lender's standard variable rate). Additionally, it can be a way to consolidate debt into a single payment.
Remortgaging can be a smart financial move, but it's important to weigh the costs and benefits before making a decision. In this blog, we go over the various reasons that you or any other homeowner may remortgage to find a better deal.
Save Money On Lower Interest Rates
Remortgaging can help you secure a better interest rate, which can save you money over the life of your mortgage. This is because mortgage interest rates can change over time, and a lower or competitive rate could result in significantly lower monthly payments.
For example, if you have a fixed rate mortgage, then an interest rate hike such as Bank of England's recent increase to 4.25% during economic turbulence will not be applicable to you until your fixed rate period ends. However, if you're on a standard variable rate (SVR) deal, then your current mortgage rate may be significantly higher, which may require you to search for a different mortgage deal, possibly with other mortgage providers.
For example, if you have a £200,000 mortgage with a 3.5% interest rate, your monthly payments would be £898 over a 25-year term. However, if you were to remortgage and secure a 2.5% interest rate, your monthly payments would decrease to £793, saving you £105 each month. Over the life of the mortgage, this could result in savings of over £30,000.
To find the best remortgage deals, it's important to shop around and compare rates from different lenders. You can use comparison websites or work with a mortgage broker who can help you find the best deals based on your financial situation and goals.
It's also important to consider any fees and charges associated with remortgaging, such as exit fees from your current lender and arrangement fees from the new lender. By weighing the costs and benefits, you can determine whether remortgaging is the right financial move for you.
Funding Home Improvements
Remortgaging could provide you with the funding you need. By using the equity in your home, you can borrow and raise money more money than your current mortgage balance and use it for renovations or repairs. This can be a great option if you want to increase your property's value or create a more comfortable living space.
Some popular home improvements that could increase your property's value in the UK include converting a loft or garage into additional living space, upgrading your heating system to a more energy-efficient one, installing solar panels, or adding a conservatory. These types of improvements can make your home more attractive to buyers if you decide to sell in the future, or simply provide you with a more comfortable living space.
To ensure that your remortgage will cover the cost of your planned improvements, it's important to work out a clear budget for the work you want to do. You should also consider any associated costs, such as planning permission or building regulations approval.
It's important to work with a reputable contractor who can complete the work to a high standard and provide you with a clear breakdown of costs.
Remember, taking on additional debt through a remortgage deal is a significant financial decision, so it's important to weigh the potential benefits against the costs. If you have another outstanding loan or short term loans, this may involve paying more money towards your new mortgage deal.
We also recommend speaking to a certified financial advisor for more customised tips and suggestions.
Remortgaging can be a useful strategy for consolidating debt, which involves taking out a new mortgage to pay off existing debts such as credit cards, personal loans or other high-interest debts.
This can be an attractive option for you if you find yourself struggling to manage multiple debts and wanting to simplify your finances by combining them into a single monthly payment. By remortgaging to a better new deal, you're effectively
Types of debt that can be consolidated with a remortgage in the UK include credit card debt, personal loans, car finance, and other unsecured debts. By consolidating these debts with a remortgage, you can potentially release money which can help save on interest charges and reduce your monthly payments.
However, it's important to note that remortgaging for debt consolidation can also increase the total amount of interest you pay over the life of your mortgage. This is because you're extending the repayment period for your debts and paying interest on them over a longer period. Additionally, if you're using your home as security for the loan, you could be at risk of losing it if you're unable to keep up with the repayments.
If you do decide to remortgage for debt consolidation, it's important to have a plan for managing your debts going forward. This could involve setting a budget, cutting back on unnecessary expenses, and finding ways to increase your income.
It's also important to avoid taking on additional debt and to focus on paying off your consolidated debts as quickly as possible to reduce the amount of interest you'll pay over time, as a mortgage usually is your biggest financial commitment.
When to Start Thinking About A New Remortgage Deal
It's a good idea to start thinking about a new remortgage deal when your current mortgage deal is coming to an end. Most mortgage deals in the UK are fixed for a set period, such as two or five years, after which they revert to the lender's standard variable rate (SVR), which is usually higher. This means that your monthly payments will increase unless you switch to a new mortgage deal.
You should start looking for a new remortgage deal a few months before your current deal ends to give yourself plenty of time to research and compare different options. You're likely to be eligible to switch within six months of your deal expiry date.1 This will help you find the best deal for your needs and budget, and avoid being stuck on your lender's higher SVR.
You may also want to consider remortgaging if your circumstances have changed since you took out your current mortgage. For example, if your income has increased, you may be able to afford a larger mortgage or a shorter repayment term, which could help you save money in the long run.
Ultimately, the best time to start thinking about a new remortgage deal depends on your individual circumstances and financial goals. It's important to do your research, speak to a mortgage broker or financial advisor, and make an informed decision based on your needs and budget.
Disadvantages of Remortgaging
While remortgaging can have its benefits, there are also some downsides that you should be aware of before making a decision:
Fees and costs involved
Remortgaging typically involves fees and costs, such as arrangement fees, valuation fees, legal fees, and exit fees. These can add up and make remortgaging more expensive than you initially anticipated.
Longer repayment term
If you remortgage to release equity or consolidate debt, you may end up extending the repayment term of your mortgage. This can result in you paying more interest over the life of the mortgage.
Risk of negative equity
If the value of your property decreases, you may end up in negative equity, which means that you owe more on your mortgage than your property is worth. This can make it difficult to remortgage or sell your property in the future.
Impact on credit score
Remortgaging can affect your credit score, particularly if you're taking out a new mortgage or consolidating debt. This can make it more difficult to obtain credit in the future.
Risk of repossession
If you remortgage to consolidate debt and use your property as security for the loan, you could be at risk of losing your home if you're unable to keep up with the repayments.
In conclusion, remortgaging can be a useful tool for homeowners to take advantage of lower interest rates, fund home improvements, and consolidate debt. While everyone has their own reason to remortgage, in effect, you may be able to save money on your monthly payments, increase the value of your property, or manage your debts more effectively.
However, remortgaging also comes with its downsides, such as fees and costs, a longer repayment term, and the risk of negative equity or repossession. It's important to carefully consider your individual circumstances and financial goals, do your research, and seek professional advice before making a decision.
If you're considering remortgaging, be sure to shop around and compare different mortgage deals to find the one that best suits your needs and budget. With careful planning and consideration, remortgaging can be a helpful tool to achieve your financial goals and secure your future.