Online Calculators since 2009
A remortgage can be very beneficial if you choose one for the correct reasons. However, there are situations where it is advisable to continue with your current mortgage and avoid remortgaging. In this remortgage guide we will look at the good reasons Not to remortgage. This mortgage guide follows our previous review of the good reasons to remortgage
While a remortgage has a lot of advantages, there are times when it is not advisable to go for a remortgage. Let's look at some of these instances.
If your outstanding mortgage amount is relatively low, sayy of around £50,000 or less, a remortgage is not advisable. When remortgaging with a low mortgage amount you are likely to pay more in switching costs and mortgage fees in comparison to the savings from the new mortgage product. Some lenders may not even provide a remortgage for loans below £25,000.
If switching to reduce monthly repayments to provide more funds for other financial commitments or as part of a debt reduction plan, you should calculate the fees, and make sure there's a real financial benefit. The cost of mortgage fees etc. may well be larger than any savings you would achieve by paying off your debts. In the majority of situations it is better to repay the remaining mortgage at a higher interest rate as opposed to incurring the fees associated with going for a remortgage.
If the early repayment charge is too high, it may not be wise to go for a remortgage. You should work out the cost and determine whether it is profitable to go for a remortgage. If the numbers work out it makes sense to switch sooner than later.
You should also consider any early repayment charges or exit fees as they are alos known. If the early repayment charge is too high, you should check with your current lender to see if they will allow you to switch to another deal from their mortgage portfolio which has a lower early repayment charge. While the deal may not be as attractive as the best deals in the market, it may still be better for you because you are saving money by reducing the early repayment charge.
Under the new mortgage rules, lenders have become more stringent in awarding mortgages. Let's say, for any reason, if your financial situation has worsened from the time you took a mortgage, you may be rejected by a new lender because of not meeting their mortgage affordability criteria.
It is possible that based on the property value at the time of purchase, you would have been in a low LTV (loan-to-value) band, and thus got a decent interest rate. However, if the value of your home value has dropped, you will now be in a higher LTV band and will have to pay a higher interest rate. In such an event, you should be patient and try to clear off the debt as soon as possible. You can calculate your current LTV using our Loan-to-value Calculator
As discussed above, you will not get a good interest rate at a lower LTV if your deposit amount is too low. Let's say you want to borrow a higher amount for purchasing another property, but if your LTV is high, it can be difficult to go for a remortgage. Nevertheless, lenders provide mortgages of up to 95% of the property's value, so it may be a good idea to check with them. However, if the LTV has increased, be prepared to pay higher interest rates.
As we learned earlier, lenders have become stricter 'post credit crunch' and the introduction of new mortgage legislation from the Financial Conduct Authority, when it comes to providing new mortgages. The Financial Conduct Authority (FCA) has directed lenders to perform detailed affordability checks on prospective borrowers and be able to prove that they have been duly diligent through the financial process.
Let's say your credit record has not been clean in the past few months for any reason, such as any missed repayments for mortgages, credit card, and other bills. In these circumstances, it is not a good idea to apply for a remortgage as the lender may reject your application.
A remortgage can provide significant financial savings if done correctly. As we have discovered so far within the mortgage guides, there are several reasons for applying for a remortgage. However, before securing a remortgage, you need to take into account the various fees like early repayment charges and ensure the deal is profitable. We will look at Mortgage fees in detail after our next remortgage guide: Mortgage Lending Criterea, how much you can borrow
You can use our mortgage calculator to calculate mortgage repayments.
Next: How much you can borrow?
Previous: Good reasons to remortgage