What are the benefits of remortgaging?
In this article we take a detailed look at the pros and cons of remortgaging.
Applying for a remortgage could open up your options when it comes to your home, whether you’re undergoing a life change, funding home improvements or just looking to secure a better deal.
While there are many benefits to getting a remortgage, there are also potential drawbacks, which means some careful consideration is required. In this guide, we’ll take you through some of the pros and cons of remortgaging to ensure you’re best placed to decide.
Need a crash course on remortgages before we begin? Head over to our guide to how remortgages work to get up to speed.
The simple answer to “why remortgage?” is that it’s about getting the best mortgage deal for you that works for both your current circumstances and the future. However, there’s much more to consider when trying to figure out if it’s the right move.
Below, we’ve listed some of the common reasons people choose to remortgage, which might help you identify whether it’s worth exploring your options.
It’s worth noting that, while some of these scenarios may apply to you, it’s important to think about whether it’s actually the right moment to go ahead with a remortgage. One of the key things to consider when it comes to timing is whether the decision will prove to be costly, as charges from your current and new lenders may end up totalling more than you will save in the long run. Remember, always speak to a broker to find out whether it’s worth remortgaging right now.
Your tie-in period is ending
The tie-in period of your mortgage is the period where you’re essentially “locked in” to your mortgage and can’t leave without paying an early repayment charge (ERC) to your lender. However, once this period has ended, you can usually remortgage to a new deal without having to pay any ERCs.
Remortgaging at this time can often help to reduce or at least prevent your mortgage payments from rising. After the tie-in period ends, you will likely revert onto your lender’s standard variable rate or SVR (a rate set by the lender that can move up and down) or their reversion rate (their SVR with a small discount). Typically, though not always, they will be set at a higher rate than your previous fixed deal, so locking in a better rate will ensure that your monthly payment doesn’t end up increasing.
You want a better rate
The UK mortgage market can be very competitive, so there are likely to be good deals out there. If you come across a rate that could reduce your monthly payment by a significant amount, then it may be worth looking into a remortgage that could save you money in the long term. We do recommend speaking to a broker to make sure that any new deal is right for you, as products can be more than just an attractive rate.
You want to move to another type of mortgage
Another motivation for remortgaging is if you want to move to another type of product from your current deal. There are a few types available on the market, including fixed rate, tracker, discount and SVR mortgages, each of which have various features that may be beneficial to you (as well as drawbacks to consider).
The most common type of mortgage is a fixed-rate mortgage, which fixes your interest rate for your tie-in period, so many people wait until this period has expired and then remortgage before they move to their lender’s SVR rate. At the same time, it’s possible to remortgage to another type altogether. We recommend speaking to a broker if you would like to explore what other types may be beneficial to you.
You want more flexibility
Do you feel like you’d be better off with extra flexibility in your mortgage? For example, you may find you’re now in the position to make overpayments, or you may go through periods where your income is variable. Remortgaging to a product with more flexibility or access to features that make life easier, such as payment holidays, could be beneficial. Speak to a broker if you think that this might be the right move for you.
Your circumstances have changed
When you first shopped around and applied for a mortgage, you’ll have been assessed on the information you provided to your lender at the time. This will also have impacted the mortgage offers you received. If your circumstances have since changed for the better — maybe you now have a higher income or have paid off some debt — you could be eligible for a better deal if you remortgage now.
You might have also gone through a change of circumstances in your personal life that has altered your mortgage needs, such as moving in with someone, a change in job or some other life event.
You want to reduce your mortgage term
If you can afford to pay more than you’re currently paying towards your mortgage each month, you might wish to look into reducing your term by remortgaging. If you can also secure a lower interest rate, it will mean that you’re reducing the amount of interest you’ll pay over the lifetime of your mortgage. It’s always worth speaking to a broker before making an important decision like reducing your term.
You want to release equity
Remortgages can also be a helpful way to release equity. In a nutshell, this works by releasing the equity you’ve built up in your home as cash by increasing the size of your loan when you remortgage, giving you funds that can be used for the likes of home improvements, buying a car or consolidating debts.
In this situation, it’s usually best to speak to a mortgage broker as you will be reducing your equity and potentially taking on more debt.
What are the benefits of remortgaging?
If you think you might be in the position to remortgage, then it’s worth reading up on the benefits and drawbacks of doing so. Then, you can make an informed decision on whether it’s right for your circumstances.
You can lower your monthly payment
One of the headline benefits of remortgaging is that you may be able to secure a better deal, resulting in a reduced monthly payment. By researching the market or seeking the help of a broker, you could find a product with a lower interest rate.
If you’ve been making your monthly payments on your current deal for a while, you will have been building up equity and lowering the loan-to-value (LTV) of your mortgage (the ratio of your loan to the property value). In simple terms, this means you may now own a larger slice of your home outright, which means you’re in a stronger position than when you first applied for a mortgage, so lenders may offer better rates and conditions for any remortgage deals that you go for.
This benefit is especially true if you are coming to the end of your initial tie-in period and will soon be moving onto your lender’s standard variable rate. By securing a new rate prior to your current rate ending, you can avoid potentially higher monthly payments on an SVR that can be changed at any time by the lender.
You can take control and have certainty
If you choose to fix your mortgage rate by remortgaging, you can have certainty that your payments will stay the same for an agreed period of time. This can come in handy if you are coming to the end of your initial fixed rate on your current deal.
As a mortgage is likely to be one of your biggest monthly outgoings, knowing exactly how much it will be allows you to plan the rest of your month with the payment in mind. It may also be useful to have peace of mind as the economic outlook remains uncertain.
You may be able to pay off your mortgage sooner
If you’ve had a positive change in financial circumstances since you first took out your mortgage, such as coming into a lump sum or getting a pay rise, then you may want to put more money towards your mortgage to pay it off sooner.
Remortgaging can open up a couple of possibilities to make this happen. For one, you may be able to reduce your mortgage term, where you’ll be making higher payments each month but for a reduced length of time. This will allow you to make use of that extra income and get mortgage free at a faster rate.
Another way to put more towards your mortgage is to overpay — essentially, paying more back than you need to every month. It may be the case that your current deal is restrictive on the amount you can overpay (many are), and you could get charged a fee if you decide to pay too much. By remortgaging, you can look for a new deal with the aim of overpaying in mind, then find one that has better or no overpayment limits.
You may be able to borrow more money
If you’re looking to borrow money for home improvements, a car, a holiday or another expenditure, remortgaging your property and releasing equity may be a suitable option.
You may have built up equity by paying down your current mortgage loan, and you may also have benefitted from the value of your home increasing since you bought it. It may even be possible to release equity and lower your mortgage rate in one go.
We recommend that you get some advice from a mortgage broker or financial adviser before making the decision to borrow more. It may be possible that you can get a further advance on your current mortgage that would be cheaper than remortgaging. It’s also useful to get advice on whether this type of borrowing is right for you.
You may be able to consolidate debt
If you have short-term debt, it may be possible to release funds by remortgaging, which can be used to pay them off and consolidate your repayment into one monthly amount.
However, bear in mind that doing so may mean that you will end up paying more total interest over the course of your mortgage term when compared to what you’d pay on the short-term debt. And, you’ll need to tell any lender what you’re planning to do with your funds, which could influence their decision.
We highly recommend seeking the opinion of a financial or debt adviser before making such an important decision, as they may be able to help you find a better solution.
What are the drawbacks?
You may prefer the flexibility of SVR over a new fixed rate
If you choose to remortgage and fix your rate without moving to SVR, you won’t be able to access the flexibility that variable rate mortgages can offer.
Should you wish to make overpayments each month, SVR usually has no penalties or limits for doing so, where fixed rate products typically only allow for up to a 10% overpayment. Another flexible advantage for SVR mortgages is that they don’t tend to have early repayment charges (ERCs), whereas you’ll probably need to pay a fee if you want to escape from a fixed rate period.
You may need to pay some costs
There can be some costs associated with remortgaging. The main one to be aware of is the early repayment charge, which is usually payable if you’re looking to break from your current mortgage deal early, and you’re not on SVR or an ERC-free deal. However, if you’re remortgaging at the end of your tie-in period, you can usually do so without penalty, severely reducing the costs involved.
ERCs are not the only fee you may have to pay, as your lender could charge for the likes of a deeds release fee and exit fee. There could also be fees to pay with a new lender, such as a valuation fee and legal fee, but they are sometimes waived as an incentive to customers (our guide to how remortgages work has a full breakdown of various fees).
It’s also worth noting that many remortgaging fees tend to be less pricey or waived if you’re transferring products with the same lender.
Before you decide to go ahead with your remortgage, it’s important to make sure that any costs don’t add up to more than you’ll save with a lower rate over the term of your new deal. We recommend speaking with a broker, who can advise on what will be beneficial for you, as well as sourcing deals that offer the best value.
You have to apply to a new lender from scratch
Applying for a remortgage with a new lender? They will assess you as a new customer, and you’ll need to go through the same process as when you first applied for a mortgage. Obviously, this can put a bit more work on your plate and add more stress to the situation, but there are also other ramifications to consider.
Depending on your circumstances, remortgaging with a new lender can be a plus or a negative. On a positive note, if you’re applying in a more financially stable position than when you first secured a mortgage, you could be eligible for a better deal. However, this also works the other way. If you’re in a worse position, this could negatively impact any mortgage offer when you’re assessed, so you might be better off staying put.
There’ll also be extra work if you’ve become self-employed or started a new business since applying for your last mortgage and you switch lenders, as you’ll usually need to provide two years’ worth of accounts and any other requested documents.
Should you remortgage?
Now that we’ve considered the scenarios where it could be beneficial to remortgage, as well as the pros and cons, it’s time to consider whether you should or shouldn’t.
It’s worth keeping in mind that the main two objectives of any remortgage are to save you money and to get a deal that matches your needs. You need to make sure that any savings you’re making outweigh the costs of switching in the long run and that the timing is right, as well as doing your research into the features of any new product.
We always recommend that the next step should be to speak to a broker. They will be able to fully assess your needs and give you advice on what your best options are, as well as sourcing remortgage deals to suit your needs.
Remortgaging with Atom bank
If you’re planning to remortgage, it might be worth checking out the remortgaging product range that we offer here at Atom bank.
We also offer product transfers if you’re already a customer and you’d like to continue with us — either once your fixed term deal ends or before.
Whether you’re applying for a remortgage or product transfer with Atom bank, we only offer our products through independent brokers, so you can be sure that they’ll provide you with recommendations that are right for you, be it with us or someone else. You can find a broker near you and get started here.
If you’re remortgaging with us as a new customer, your broker will ask some questions about you and your financial circumstances, as well as any other residents in the property, to find out what your needs are and what products may be suitable. Even if you’re an existing customer seeking a product transfer, they’ll still discuss your options to make sure that you’re getting the best deal possible.
Once your broker has got all the information they need, they will make a product recommendation. If it’s with Atom bank, we will provide you with a Decision in Principle (DIP) once an initial assessment has been completed, then, through our app, we’ll guide you through the rest of the remortgaging or product transfer process.