Remortgage – do not pay more than you should

What is remortgaging and what are my options?

A remortgage is where you already own your home and you’re looking to change the parameters of your current mortgage. It might be that your current rate is ending or you want to borrow more. It is all about about getting a new mortgage on your existing property. 

When is it a good time to remortgage?

You should look to remortgage at 6 months before your fixed rate comes to an end. With interest rates being as unpredictable as they are, it is important to search the market and ensure you are giving yourself the best opportunity to remortgage onto a better rate.

Most people are tied into a rate, whether it’s a fixed rate or a tracker rate, and you would have an end date for that particular product. For example, your rate might be ending in 5 months time and with current interest rates, it may mean that your monthly payments will be going up at that time. However, if you get ahead of it, you can line up a better rate or a more suitable mortgage for your circumstances. 

At The Mortgage Broker, we advise our customers to start looking at options six or seven months before their rate is expiring. That gives you plenty of time to make decisions, run all the numbers and fully understand what’s going to happen. Then you can apply for a new mortgage and secure a new rate up to six months ahead of your current rate expiring. 

When is remortgaging not a good idea?

If you’re tied into a fixed period you would normally have quite a hefty penalty to come away from your current lender early. So it may not be a good idea at that point – unless you have a really clear reason for needing to remortgage. 

You may want to remortgage to get a better rate – although I’m not sure that’s a realistic example in the current market. It’s more likely you will be going from a low rate to a higher one. 

You might want to borrow more, to do crucial improvement work to your property, to extend your home or clear debts. In these cases you may find it’s worth paying the penalty to be able to remortgage early. 

In the past I have had people on higher rates that have paid the penalty because the lower rate makes the overall cost worth it. But an advisor will always sit and go through the pros and cons with you and fully weigh up whether it’s cost effective for you to remortgage or not.

Why remortgage at the end of a fixed rate deal? What happens if I don’t remortgage after my deal expires?

If you opted to do nothing at all, you would just roll on to your lender’s standard variable rate. When your fixed period ends, the mortgage doesn’t doesn’t magically stop – you start paying the variable rate. 

Unfortunately at the moment variable rates are pretty high – with most high street lenders, the variable rates are between 6% and 8.5%. Most people don’t want to roll on to that much higher rate unless it’s essential. 

But if you’re planning to move in the very short term or change your setup in the short term, paying the variable rate for a month or two might be better than tying yourself into a new deal. Obviously, on a new deal you’re then going to have another penalty. 

Most people, though, when their fixed deal is ending, want a new fixed deal either with a new lender or with their existing lender. It’s definitely going to be better than paying the variable rate.