Remortgaging: When, Why, How

When the bank start offering you new terms, it’s time to start remortgaging. The majority of people take out mortgages fixed at a specific interest rate for two or five after which time the interest rate increases onto a higher variable rate. At this point, the bank your mortgage is with will contact you offering a new deal and sell it to you on the basis that, if you don’t take the new deal, your payments will increase. The key here is they’re selling you something again! If you used a broker to set up your original mortgage, why wouldn’t you use a broker for the remortgage? And if you’ve not used a broker before, well, now’s the perfect time to start.

We’re not saying you should never stay with your bank; we’re saying you should only stay with them if they’re still offering the best deal available. Some lenders even offer worse rates for existing customers because they know many people can’t be bothered to change! Don’t get caught in the trap of “only an extra £50 a month” and you’re avoiding the “hassle” of remortgaging. Add that £50 up over 5 years and you’ve just thrown away £3,000. Now think of everything you could’ve done with that cash rather than give it to a bank…

Remortgaging is not just an opportunity to switch to a better deal. It’s also a great opportunity to raise capital, reduce your mortgage term or even consolidate debts, depending on your circumstances. Doing so when your current deal comes to an end is the perfect time as there can be early repayment charges if you do it during. However, there can be ways around this and sometimes it can be for the greater good regardless.

A remortgage gives you the opportunity to increase or decrease your mortgage balance. Increasing your mortgage releases the equivalent amount of cash straight to you. It can be done to allow you to make improvements to your home, purchase an investment property, pay for a wedding or several other reasons. This can be done during a fixed period without paying a penalty – called a further advance. Increasing your mortgage term has the simple effect of decreasing your monthly payments. However, this should only be done if necessary as you pay more interest when you spread the debt over a longer period. On the other hand, decreasing your mortgage means you can clear it faster or reduce the monthly cost. During a fixed period, there is typically a maximum 10% overpayment allowed before you incur a cost. At a remortgage however, you can pay off as much as you want to! Decreasing the mortgage term if you can afford the increased monthly payments can also be a great way to shave years off your mortgage term – particularly useful if you’ve had a promotion and you’ve got surplus cash each month.

Finally, we want to touch on debt consolidation. If you’re really struggling with cashflow problems each month this may be something worth considering before you end up defaulting on a credit agreement. If you’ve got credit card debt, loans, car finances, all to pay and you’ve realised you’ve got yourself into trouble, debt consolidation can provide a solution. This is simply increasing your mortgage balance which releases the equivalent amount of cash to allow you to clear these outstanding debts. Your mortgage will likely be spread over a much longer term that any unsecured loans and consolidating your loans over this longer period eases monthly cashflow. You may end up paying more interest long term but if the alternative is being unable to pay bills, we’re here to have a chat about debt consolidation.