Can You Remortgage Early?
This article explains what you should look for when considering a remortgage and how to remortgage at the most opportune moment. Let’s explore remortgaging further.
What is Remortgaging?
Remortgaging is the act of borrowing money against a property that you already own. In most cases, people opt to change lenders and take advantage of more competitive deals, but you can remortgage with the same lender, technically known as a product transfer, especially if they have the best deal.
Remortgaging works in a similar way to your original mortgage application but is usually a much faster process because the property checks have already been completed. Sometimes these property checks will need to be carried out again when you switch lenders, mostly in cases where you have an unusual or listed property.
If you raise a mortgage on an unencumbered property, this is also known as a remortgage even though a mortgage is not being redeemed in the process.
Why Do People Remortgage?
Borrowers remortgage for several reasons. A mortgage agreement tends to encompass a large portion of our lives and our circumstances change over time. These changes and the general mortgage market mean our existing mortgage deal may no longer be suitable.
Below are the three most common reasons people remortgage.
Obtain a Better Deal
Most remortgages are done when one deal comes to an end. By remortgaging you are put onto a new mortgage deal instead of your existing mortgage reverting back to a lender’s Standard Variable Rate.
Standard Variable Rates (SVRs) are normally uncompetitive and even remortgaging onto a higher interest rate mortgage deal is typically preferable to the SVR.
By remortgaging when one deal ends, you are ensuring your mortgage is on the best rate available to you for the next couple of years at least.
Borrow More Money
Sometimes the amount we borrowed initially is not suitable anymore. For example, if you have more children and wish to renovate or build an extension you may choose to remortgage to borrow more money.
Remortgaging to borrow more money is normally possible providing you hold enough equity in the property and meet the lender’s affordability criteria. It can be difficult to remortgage for more money early in a mortgage term as you may not hold enough equity to cover the additional borrowing.
Extend or Reduce the Mortgage Term
As our lives progress, our income fluctuates. Typically, between the ages of 40 and 55 we earn more, and you may wish to reduce the mortgage term and make higher mortgage payments during this time.
Making higher monthly mortgage payments will help you clear the debt faster and, in most cases, reduce the total cost of the loan because you are reducing the time that interest accrues.
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How Early Can You Remortgage?
In theory you can remortgage as soon as you have completed your first mortgage application, however in most cases this is undesirable.
Lenders who offer mortgage products, especially if they are fixed, will normally tie you into the product term by levying Early Repayment Charges if you exit early.
These Early Repayment Charges can be high, and you might find any financial benefit of remortgaging disappears when you factor in the cost of the charge.
Not all mortgages have Early Repayment Charges, and most lenders allow you to make overpayments on your mortgage without penalty. This is typically a 10% overpayment facility of the amount outstanding per annum.
Can You Remortgage Early on a Fixed Rate?
Yes, remortgaging early on a fixed rate is possible and can be beneficial providing the Early Repayment Charge does not negate the savings you make by remortgaging.
In rare cases, you might be remortgaging due to a change in circumstances rather than saving money and paying the Early Repayment Charge is acceptable. For example, the removal of a partner from a mortgage deed following a breakup.
In any case where you are considering remortgaging early you should consult with a mortgage broker who can evaluate your personal situation and make a recommendation.
For example, with rate rises anticipated over the next 12 months, some borrowers are taking the risk of remortgaging early to lock in a more favourable rate than if they wait for their mortgage deal to end.
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When Should You Consider Remortgaging?
You should look at remortgaging if you are concerned about your current mortgage interest rate or the potential for a higher rate if you wait for your deal to end.
Sometimes a change in circumstances can prompt the need to remortgage such as retirement or changing jobs.
Your financial situation may be difficult with your existing mortgage deal, and you may wish to explore your options to help your mortgage be more affordable.
Y For example, even with rate rises currently, you may be able to reduce your monthly mortgage payments by extending the mortgage term.
In almost all cases it is best to remortgage when your existing mortgage deal is coming to an end to avoid the Standard Variable Rate charged by your lender after the deal expires.
Risks of Remortgaging Early
There are two main risks of remortgaging early.
If you have Early Repayment Charges, remortgaging may be more costly than if you let your mortgage deal run its term and remortgage in the future.
Although the economic outlook at the moment is bleak, economies are known to swing quickly, especially if proactive action is taken by governments and central banks. You may remortgage early hoping to avoid a higher rate and find that interest rates would have been more favourable if you let your mortgage deal run its term.
How to Get the Best Remortgage Deal
Whether remortgaging early or at the end of your mortgage deal, it is always advisable to consult a Whole of Market mortgage broker.
Mortgage brokers will be able to search the mortgage market for the best deal and make a bespoke recommendation based on your personal situation. A good mortgage broker will also advise you of any risks associated with remortgaging.
Boon Brokers specialises in Market Mortgage, Insurance and Equity Release Brokerage as well as providing fee free mortgage advice.