Your mortgage payment is probably your largest monthly expense, so it only makes sense to shop around for better offers by remortgaging.
Remortgaging gives homeowners the opportunity to move to a new mortgage deal on the property they own in order to secure a better rate. This allows them to release cash, have more flexibility, or borrow money against the property.
In fact, recent data shows that there were nearly 18,610 new remortgages in the UK in November 2019—a 5.7% increase compared to last year.
Here’s when you should start thinking of remortgaging:
When Your Fixed Term Mortgage Is Coming To an End
It’s a good practice to look for a new mortgage deal around 3 months before your current mortgage deal ends. For instance, in case of a 3-year fixed mortgage, start shopping around in the 33 month of your 36-month deal.
Plus, when a mortgage lender offers a deal, you typically have between 3–6 months to accept the deal, after which you’ll need to reapply.
In case you’re unable to secure a new deal, you’ll likely be reverted to Standard Variable Rate (SVR) mortgage at the end of your promotional period, which can be more expensive than if you shopped around for a discount rate or fixed rate mortgage.
In fact, studies have shown that in the UK, the average 2-year fixed rate mortgage is 2.52%, which is far lower than the average 4.9% SVR mortgage. So, if your mortgage repayment over 25 years was £300,000, the monthly payments would increase from £1,349 to £1,736—an increase of £400 every month when it changes from fixed rate to SVR mortgage.
You’ve Build up Equity in Your Property
The amount of house that you’ve already paid for is referred to as the equity. So, as time goes by, the amount you own on mortgage goes down, and the amount of equity in your property goes up. Plus, the more equity you end up owing, the lower is the loan to value ratio (LTV).
If you previously took out your mortgage on a high LTV ratio, and the house price has since risen, you can now remortgage at a lower LTV ratio. This is beneficial because the lower your LTV ratio, the lower risk you are to the mortgage lender and therefore, the less interest rate you’ll have to pay.
When the Benefits Outweigh the Cost
When switching from one mortgage lender to another, there are different associated fees: These include:
- Valuation fee
- Arrangement fee
- Exit fee
- Legal fee
After taking out these costs, figure out how much money you’ll save by remortgaging. Consult with a mortgage advisor to get the most cost-effective mortgage deals.