Expert tips to help you decide if the time is right to save money or secure a better deal
Deciding whether to remortgage your home is a significant financial decision that requires careful consideration and planning. This process can affect not only your immediate financial situation but also your long-term goals, such as building equity or achieving greater financial independence.
Before proceeding, ask yourself key questions like, “Will remortgaging lower my interest rate or reduce my monthly payments?” or, “Am I prepared for the fees and potential risks involved?”
Why timing is critical
Additionally, consider how changes in your property’s value or fluctuations in the economy might impact your available options. Taking the time to understand the broader implications can help you make a choice that aligns with both your short-term goals and future financial stability. Timing is another critical factor that should guide your decision. Market conditions and interest rate trends play a pivotal role in determining whether remortgaging is beneficial. Reflect on whether current rates are likely to rise or fall in the near future and how this could affect your borrowing costs.
Evaluating each factor
Consider your current position within your existing mortgage term. For instance, if you’re nearing the end of a fixed-rate period, it may be a good time to explore your options. Conversely, if substantial early repayment penalties exist, this could influence your decision. Are you financially prepared to handle the costs of remortgaging, or would waiting allow you to enhance your situation? Evaluating these factors can help you approach the process with clarity and confidence.
Can remortgaging save me money?
One of the primary reasons homeowners opt to remortgage is to take advantage of cost-saving opportunities. If your current mortgage deal is nearing its end and you’re about to enter your lender’s Standard Variable Rate (SVR), it’s likely that your monthly repayments will increase. Switching to a new deal with a more competitive interest rate could save you hundreds, or even thousands, of pounds over the lifespan of your mortgage.
Additional ways remortgaging could save you money:
Debt consolidation
If you have existing high-interest loans or credit card debts, a remortgage might allow you to consolidate these into one monthly repayment. While this can simplify your finances and potentially lower your overall rate of interest, bear in mind that you’ll likely repay the debt over a longer period, which could increase the total amount you owe.
Reducing your term
If your finances are in a good place, you might consider remortgaging to a shorter term. While this will increase your monthly payments, it could reduce the total amount of interest you pay overall.
Before proceeding, it’s essential to do the sums carefully. Remember to account for any fees associated with switching deals, such as arrangement or legal fees, which could offset some of your savings.
Remortgaging when your house value has increased
An increase in your property’s value since you took out your current mortgage could work significantly in your favour when it’s time to remortgage. A higher-valued home typically results in a more favourable Loan-to-Value (LTV) ratio, potentially opening the door to improved deals.
For example:
- If your property was worth £200,000 when you took out an 80% LTV mortgage, you’d have borrowed £160,000. If the property has since risen in value to £250,000, your borrowing now represents just 64% of the home’s value. This improved LTV could qualify you for lower interest rates, saving you money.
- If your LTV drops below key thresholds, such as 90%, 80%, or 75%, it simplifies accessing better deals. Keep an eye on these benchmarks and speak with your mortgage broker to see if you qualify.
Even small changes in interest rates can impact your monthly payments, so it’s worth tracking market trends and seeking expert advice to maximise your savings.
Should I remortgage now or wait?
Timing your remortgage decision is critical, as it depends on both market conditions and your personal circumstances.
Consider these factors before deciding whether to act now or wait:
Current interest rates
- If you believe rates are at historic lows but are predicted to rise, acting now could help you secure a lower rate for the future.
- However, if you believe rates have peaked and you expect them to drop in the near future, it may be worth holding off to secure a more favourable deal later.
Always seek professional advice to help you make a well-informed and confident decision.
Remaining term on your deal
- If your mortgage deal is within six months of expiring, start shopping around for deals. Many lenders allow you to secure a new rate in advance, ensuring a seamless transition.
- If you’re mid-way through a fixed-rate term and wish to switch, check for early repayment charges, as they might outweigh the benefits of remortgaging.
Ultimately, the decision depends on your financial priorities and whether you’re satisfied with your existing rate.
Can I apply for a new mortgage deal before the end of my current one?
Yes, remortgaging before your current deal ends is entirely possible and can be advantageous. Many lenders enable you to lock in a new fixed-rate deal up to six months in advance, providing peace of mind and protecting you from potential rises in interest rates.
However, consider the following:
Early repayment charges (ERCs)
- Some fixed-rate mortgages come with ERCs if you exit before the term ends. Assess the financial impact of these fees before switching.
- For example, if your monthly savings on a new deal outweigh the ERC costs, moving early may still make sense.
Flexibility
- Check the terms from your new lender. Some deals allow for maximum flexibility and early repayment options should your situation change.
Advance planning helps prevent costly gaps between agreements.
Should I fix my mortgage?
A fixed-rate mortgage can be the right choice for those seeking predictability and reassurance in an unpredictable economic landscape. With your interest rate locked in, you won’t need to worry about market fluctuations impacting your monthly repayments.
Securing a fixed-rate mortgage:
Financial stability
- Valuable for budgeting, as your monthly repayments remain consistent, even if interest rates rise.
- Offers individuals with a steady income the opportunity to gain long-term control over their finances.
Protection from rate hikes
- Fixing your interest rate could shield you from increases driven by changes in the base rate.
However, a fixed-rate deal may not suit everyone. You might prefer not to lock in your mortgage if flexibility is important to you. Variable or tracker mortgages could offer lower initial rates than fixed options. These alternatives allow you to take advantage of falling interest rates, thereby reducing your monthly payments.
They provide the ability to adjust your mortgage without incurring penalties, making them ideal for those who are comfortable with some uncertainty and willing to manage potential rate increases.
How long should I fix my mortgage for?
The length of your fixed-rate term is equally important as deciding whether to fix it at all. Options may include two, five, or even ten-year terms, each offering distinct advantages for selecting them.
Two-year fixed rate
- Offers flexibility to review your financial situation sooner and adjust if needed.
- However, you’ll need to renegotiate comparatively sooner and may incur higher fees every time you switch.
Five-year fixed rate
- Provides long-term stability, protecting you from economic uncertainties.
- Ideal for those planning to stay put for the foreseeable future.
Ten-year fixed rate
- Ensures security over a decade but often comes with higher ERCs if you need to exit early. This option is suited to homeowners with a clear long-term plan.
Take time to assess your lifestyle and future plans before deciding on the term length. Being overly cautious can restrict your flexibility, while being too short-sighted might leave you vulnerable to risks.
Seek personalised mortgage advice
Remortgaging offers the opportunity to save money, secure better terms, or gain financial peace of mind. But it is not without complexity. Factors like market trends, your financial position, and potential fees make navigating this decision require care and expertise.
- Explore comparison tools to assess potential deals.
- Speak with an experienced mortgage broker to gain access to exclusive offers and professional guidance.
Ready to discuss your remortgage options?
Choosing the right remortgage option can feel overwhelming, but you don’t have to face it alone. Whether you’re considering porting your current mortgage or exploring new alternatives, we’re here to guide you. Our experts will help you review your options, compare market deals, and provide advice tailored specifically to your goals and circumstances. Speak to the team at Fitch & Fitch at 020 7859 4098 or email us at info@fitchandfitch.co.uk.