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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 not go for a remortgage. In this remortgage guide we will look at the good reasons to remortgage
For the vast majority of people, a mortgage is the biggest expenditure of their life. Given the high amount of money involved, if you can reduce the cost of a mortgage in any way, it can lead to savings worth thousands of pounds. In modern times we tend to negotiate a lot or compare products before making the smallest of purchases. This is a really positive consumer habit that has grown with the increased competition and accessibility that the internet and its associated tools have delivered. Ironically people still stick with the same mortgage product year after year, even though if they were to leverage the same negotiation skills in a mortgage, they could make substantial financial benefits. Reducing your interest payments is one very strong reason for choosing to remortgage.
Typically the incentive rate period, or the period where banks offer special interest rates, lasts for between 2 and 5 years. Whether you go for a fixed rate mortgage, a tracker mortgage or a discount mortgage, the incentive rate period is usually the same.
Once the incentive rate period ends, you will be moved to the standard variable rate (SVR) charged by the lender. Usually, the SVR will be higher than your incentive rate as well as the other deals available in the market. In such a case, a remortgage can be beneficial to you. Note, you need to start looking for a better deal at least 3 months before the incentive rate period ends. This allows you time to research and plan for remortgaging.
If you have taken a mortgage as part of an initial deal, you may have to pay an early repayment charge if you switch the deal before the initial period. The early repayment charge can sometimes be 2-5% of the remaining loan. Also, some lenders may charge an exit fee or an admin fee if you choose another lender.
In spite of the additional costs, it can still be beneficial if you switch to another deal. However, you should work out the math carefully before taking any such decision or use our Remortgage Calculator.
Banks charge lower rates for those who are in a lower loan-to-value (LTV) band. If your home value has appreciated considerably from the time you have taken a mortgage, you can take advantage of this situation and get low-interest rates. Sometimes, you may also want to make an additional mortgage payment from seperate funds (a bonus or lottery win maybe), and reduce your LTV further for an even lower interest rate.
If interest rates go up, this can increase the overall cost of your mortgage. If there are any real indications of an increase in interest rates, it is worthwhile to consider a remortgage. However, before any such decision, you should be sure the Bank of England rates are going to increase. In such a scenario, it may make sense to go for a lower rate fixed rate mortgage. However, if you are expecting an increase in the mortgage rates for new customers only, you don't have to bother about going for a remortgage. You can calculate how much your monthly mortgage repayments could cost you by altering the interest rates in our Mortgage Calculator, this will help you plan proactively for any economic changes which could affect your own household budgets.
Let's say your income has increased, and you want to overpay some of your loan. However, the current mortgage prohibits mortgage overpayments. Or at other times, your current deal may allow a capped overpayment than your financial capacity (capped at £2,000 for example and you have £3,000 you wish to clear from the outstanding mortgage amount). In such a scenario, you can benefit from switching to a remortgage. Apart from reducing the mortgage amount, you will also get a lower interest rate. However, as discussed above, you should carefully calculate the cost of early repayments and exit fees, if any, and make sure the deal is profitable for you in the long term.
Similarly, you may want other flexible features in a mortgage such as payment holidays. This could be because you are taking a travel or a study break, or for any other reasons. Or at other times, you may want to convert your mortgage into an offset mortgage that combines your savings account and your mortgage, resulting in lower interest payments.
If your current mortgage doesn't provide you with features you want, you can consider a remortgage. However, you should be prepared to pay extra for any flexible features.
If you have the repayment capacity and you have made timely repayments since you took the mortgage, your present lender will be more likely to increase the mortgage loan amount. However, there may be times when the current lender will not allow additional lending or an extension to the mortgage. In some circumstances the mortgage lender will allow you to borrow more but the terms are not as attractive as the mortgages offered by other lenders. Remortgaging can be a good option in these situations but you need to calculate the fees and the cost of switching the mortgage.
There are many positive reasons to remortgage and the process can be financially beneficial for you, both in terms of reduced monthly repayments and the total amount of interest repaid on your mortgage. The key factor is the financial validity of remortgaging, do the good reasons discussed above work for you? Using the remortgaging Calculator
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