Remortgaging can be a great opportunity to save money on your mortgage repayments.
The best deals available are usually those that have fixed terms and so a discounted rate is offered throughout this fixed term. When this comes to an end, you will move on to the lender’s standard variable rate which follows the Bank of England base rate. This will usually result in you paying a far higher rate than the one you had previously and by remortgaging you may be able to secure a new fixed or tracker rate at a lower interest rate thereby saving you money.
However, there are many factors to consider which will affect whether you are likely to save money by switching mortgage deals.
Firstly, do you your research on the rates available. There are various mortgage calculators available online which will help you to do this. You could also instruct a mortgage adviser or mortgage broker to assist you as they will have access to a range of products across the market with various different lenders.
Secondly, consider the fees that you will incur during the remortgage process and ensure these won’t outweigh the savings that you are going to make by securing a new rate. This is particularly relevant where you are still in a fixed term deal as you are likely to have to pay an early repayment charge if you leave this deal early. This is usually calculated as a percentage of the loan remaining and can be quite considerable for example where there is a large loan outstanding or you are still in the early stages of the fixed term.
Thirdly, consider your future plans. Locking into a 5 year fixed deal might present you with a great saving upfront but if you plan to move house within the next 5 years, this may not be the best option for you overall as you risk having to pay potentially hefty early repayment charges.
You may also be able to save money on your mortgage where your property has increased in value or you have more equity in the property. This is because the loan-to-value changes as you decrease your loan amount. For example, if you took out a £135,000 mortgage on a £150,000 property your loan-to value would be 90%. If 3 years later the property is now worth £195,000 and you have also paid off £20,000 on the loan then your loan-to value would now be 60% and you are likely to be able to get much more competitive rates from lenders.
If you only have a small amount of the loan left to pay then the savings to be made from switching to a different rate may be too small to make it worthwhile.
It is therefore advisable to consider your personal circumstances, future plans and to compare different deals with different lenders before deciding whether remortgaging is the best option for you.
