3 reasons why you should consider a remortgage

New figures from UK Finance have revealed that the number of consumers opting to remortgage has risen by almost 20% year-on-year.

According to the data, there were 19,650 ‘like for like’ remortgages in May 2019, 21,370 where consumers borrowed additional funds, and 15,000 Buy to Let remortgages.

With more than 55,000 borrowers switching their mortgage in May alone, is it time for you to think about a remortgage? Here are three reasons you might want to consider it.

1. To get a better deal

When you take out a new mortgage, you will often take advantage of a fixed, tracker or discounted rate for the first two to five years.

When this rate ends, your mortgage will ordinarily revert to your lender’s Standard Variable Rate (SVR) which is often higher than both your existing rate and the best deals available more widely in the market.

Moneywise reports that almost one million borrowers are paying their lender’s SVR. And, with the average rate sitting at 4.89% (according to financial analysts Moneyfacts) borrowers are potentially paying thousands of pounds more a year than they need to.

The savings you can make by remortgaging onto a better rate can be significant.

For example, a borrower with a £100,000 repayment mortgage over 25 years paying an SVR of 4.89% would have monthly repayments of £578. By switching to a two-year fixed rate at 2% they could cut this to just £424.

If the value of your home has risen since you took out your mortgage, you may find you’re in a lower loan-to-value band, and therefore eligible for much lower rates. This could result in even bigger savings.

Many lenders will also pay the legal and valuation costs of switching your loan but watch out for any arrangement or booking fees. It’s important to take both the monthly savings and any costs of switching into account to work out whether a remortgage is worthwhile. If you’re unsure, we can work this out for you.

One word of caution: before you decide to remortgage you should always check that you’re not tied into a deal with your existing lender.

Check whether you are still on a fixed or tracker rate, or whether you’re paying your lender’s SVR. If you are still on a deal, then you might have to pay an Early Repayment Charge (ERC) for coming out of the deal. These are often charged at a percentage of the amount you repay and so can run into thousands of pounds.

If you are on your lender’s SVR then you will typically have no early repayment charge to pay.

2. To borrow extra money

The latest data from UK Finance showed that there were 21,370 new remortgages in May where the homeowner borrowed more than their original mortgage. This represents a rise of almost 20% when compared to the same month last year.

Mortgage expert Andrew Montlake believes that more people are deciding to stay in their property and remortgage than move home. He says: “The 20% increase in remortgages with additional borrowing confirms how a lot more people, given the uncertain climate, are seeking to add value to their existing homes rather than move.

“With mortgage rates so low, many people see extending and renovating their existing homes as a strategic move. They’re playing percentage property.”

Borrowing additional funds when you remortgage can help you to fund improvements to your home and to add value to your property. According to Ideal Home, the UK’s most popular home improvements are:

  1. New kitchen
  2. Garden makeover
  3. New bathroom
  4. Extension
  5. Loft conversion

Many borrowers also borrow additional funds when they remortgage to repay other debts. As mortgage rates are low, many people choose to repay credit cards or personal loans by increasing their mortgage.

While this can reduce your monthly outgoings, increasing the amount you borrow against your home can be considerably more expensive in the long-term as you’re typically paying the debt back over a much longer period.

3. You want a more flexible mortgage

Have your circumstances changed since you originally took out your mortgage? Perhaps you’ve had a pay rise or maybe you’ve inherited some money, and you now want to pay extra, but your current deal won’t let you, or it will only let you make a small overpayment?

Remortgaging onto a more flexible mortgage can give you the opportunity to pay less interest and to pay your mortgage off more quickly.

An offset mortgage links your savings accounts to your mortgage. For example, if you have a £150,000 mortgage and £20,000 in savings you would only pay interest on £130,000. This can significantly reduce your monthly repayments, and you’ll always retain access to your savings.

However, many borrowers use their offset mortgage as a way of reducing the term of the loan. By keeping your repayments the same and effectively overpaying, you can repay your mortgage years early and save thousands in interest.

There are several lenders who offer this type of product but bear in mind that you may pay a slight premium for these flexible features when compared to the absolute cheapest mortgage deals available. Be sure that you will use the offset facility if you go for this type of mortgage otherwise you could find yourself paying more than you need to for your home loan.

Get the right remortgage for you

Whatever your reason for switching your mortgage, we can help. If you’re on an existing fixed, tracker or variable rate then we suggest getting in touch around three months prior to your deal ending. Email enquire@london-money.co.uk or call (0207) 808 4120 to find out more.