by Franz Muehlthaler, mortgage adviser, Holroyd Miller Properties
Q: Should or shouldn’t I remortgage my home?
A: Very rarely do you take out a mortgage and stick with the same one for the whole term. Each household is different and there are various reasons why you might look to remortgage. Perhaps you want to borrow more money or maybe you’ve seen a better rate that you’d like to switch to.
There are many reasons why you may want to; here I list the reasons why you might want to remortgage your home.
1. Current fixed deal is up for renewal. If you took out a fixed rate mortgage where you pay the same amount every month and the interest rate remains the same, once the initial term has ended (it would have been 2,3,5 years), you’ll fall onto a standard variable rate (SVR) where you could end up paying a higher interest
rate than you were previously. This is usually the time when you might remortgage in order to switch to a better mortgage deal.
2. You want to move from interest-only to repayment. Perhaps you’re on an interest only mortgage and you want to move to a repayment mortgage. Generally speaking, your lender should be able to change this for you without the need to remortgage, but if they can’t offer you the deal you want then you might consider a full remortgage.
3. Want to be on a better rate? You might want to move to a mortgage that has a better interest rate but sometimes the lender requires you to pay an early repayment charge before you can switch. It’s important to weigh up the price of the early repayment charge against the costs you’ll be saving with the lower interest rate.
4. You want to make overpayments. You might have a higher paying job now than you did when you took out your mortgage, meaning you now have more disposable income and can afford to make overpayments, but perhaps your current lender doesn’t allow you to. Therefore, you might want to look at a lender who will allow you to make overpayments.
5. Borrow more money. In order to cover the cost of the improvements, whether for a loft conversion etc. you might consider remortgaging. Don’t forget to do your research first though and weigh up the pros and cons of paying the early repayment charge, as you might find that a home loan is
overall better for you than remortgaging.
In contrast there are also times when I’d advise you against remortgaging.
1. Little equity. If you owe your lender more than the property is worth then you’re in what they call “negative equity”. It can be difficult to remortgage your house when you’re in negative equity - unless you have separate funds to repay the difference.
2. Finances have dropped. Lenders now have to see evidence of your income against your outgoings and carry out thorough credit checks. So if your income has dropped since you last took out your mortgage the lender might be more cautious about lending you the money.
3. Already on a low rate. Perhaps there is no better rate than the one you’re on.
4. Large early repayment charges. If you pulled out of your current mortgage deal before the term is up it could well come with a hefty early repayment charge. However, some lenders might waive the charge if you’re sticking with them.
*Franz Muehlthaler, mortgage adviser, Holroyd Miller Properties in association with Reach 4 Mortgage Solutions and Mortgage Advice Bureau