Around one in three of all mortgages taken out in the UK is actually a remortgage, yet many people are confused about what this word actually means in practical terms.
In short, to remortgage is to move your mortgage from one provider to another. You also might need to remortgage if you wish to borrow more money and your existing lender is unable to help.
There are many reasons why mortgage holders might choose to remortgage, including wanting to reduce repayments, extend the term, or achieve a more favourable rate than the one offered by their existing provider.
Remortgaging can also include getting a new mortgage on a property you already own outright to release equity which can be used to consolidate other debts or fund expensive home improvements.
Whatever your reason, if you're thinking about remortgaging, you should consider your options carefully, especially the impact of any fees or charges that might occur because of the change.
When is remortgaging a positive step?
Quite simply, when it saves you money. The primary motivation for any remortgage should be to seek a better deal.
Remortgaging is likely to make financial sense in the following situations:
- Your existing deal is about to expire: If your current deal is about to end, whether after two years, five years or other fixed periods, you may automatically be put on to your lender’s Standard Variable Rate (SVR). Typically, SVR will not compare well with either your previous rate or other rates available to you on the market, particularly if the value of your property has risen considerably, meaning that you are now in a lower loan-to-value band, and are perhaps eligible for a more attractive rate.
You want to end your interest-only deal: If you have been on an interest-only mortgage but wish to start repayments you may decide to remortgage if it results in a better deal than the one your current provider is prepared to give you.
You require greater flexibility: The details of our lives change and sometimes we need to change our mortgages to reflect this. Whether you are working abroad, going back into education or having another child, remortgaging could give you the flexibility you require to budget your finances.
You want to borrow more: Perhaps your current lender has said no to lending you extra money or the terms it's offering aren’t very good. Remortgaging to a new lender might give you more affordable options.
You own your house outright but you need some equity: Your situation may have changed and you want to use some of the money in your house to consolidate debts or buy something which would be a substantial cost.
When is it a bad idea to remortgage?
The grass is not always greener and, in some circumstances, there may be little or no value in remortgaging. This is illustrated by the following examples:
Your Early Repayment Charge (ERC) is too high: If moving away from your existing deal means you incur a high ERC, it may make little economic sense to remortgage. TIP: Seek advice to help you work out the cost of ERC in relation to potential mortgage savings. Find out more about ERC on our mortgage glossary.
Your debt is not large enough to make remortgaging worthwhile: Given some of the fees involved, the smaller your mortgage debt the less sense switching deals is likely to make. Furthermore, many providers may not be prepared to offer smaller loans. TIP: Think about what you need the savings for and whether there might be another way to realise cash sums or savings.
Your home is worth less than it was previously: If your home’s value has dropped, it is likely that it will not be easy or in your interests to remortgage, particularly if you are in negative equity (your level of mortgage debt exceeds the value of your property). TIP: See the Money Advice Service for more on negative equity.
Costs associated with remortgaging your own home are high: If costs associated with remortgaging your home which you own outright such as fees and higher interest rates are larger than other options such as a loan, it would not make long term financial sense.
Early Repayment Charges when you remortgage
Not all ERCs are the same. For example, some are fixed throughout the duration of a deal whereas others exist on a diminishing scale, meaning it becomes cheaper to end the deal with every year of the mortgage. Furthermore, some lenders will calculate an ERC on the basis of the amount of the original loan while others will calculate it based on the outstanding amount.
Whether it makes sense to remortgage and pay an ERC will depend on your individual circumstances as well as the terms of your existing deal.
Remortgaging with The Cambridge
Talk to The Cambridge today. Whether you are already a member or you are wondering whether The Cambridge could provide you with a better deal on your existing mortgage, we can guide you through the remortgaging process so you can understand what it might mean for you.
Contact the Mortgage Adviser at your local branch or call us on 0345 601 3344.
Your Mortgage Adviser will help you to understand which of our mortgages is likely to best suit your needs, and then provide you with a personal illustration. If you then wish to proceed, your Mortgage Adviser will help you to complete an application form. Find out more in our Guide to Remortgaging.
Mortgages are subject to underwriting and criteria. Minimum age 18, UK residents only.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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