Reasons To Remortgage Your Property | April 2024

Remortgaging your property is a significant financial decision that has the potential to affect both your monthly outgoings and your long-term financial planning. 

The process involves moving from your current mortgage deal to a new one and therefore offers various benefits such as better interest rates, more suitable terms, or the opportunity to release equity from your home. 

For many homeowners, remortgaging offers a desirable path to improved financial flexibility, and the realisation of personal and financial goals.

This article contains information pertaining to: 

– Making informed decisions about your mortgage.

– The various benefits and considerations of different remortgage deals.

– The potential savings and opportunities that are available through remortgaging.

– How understanding your remortgage options can lead to better financial management.

– Practical steps that you should take if you decide that remortgaging is indeed the right choice for you.

Table of Contents

Reasons to Remortgage Your Property

Many homeowners consider remortgaging so that they can secure a better deal than their existing one; for example, maybe the introductory period on your current deal has come to an end, and you are looking to avoid the lender’s standard variable rate (SVR), which is typically higher. 

Finding a new mortgage deal that allows you to deal with a lower interest rate can lead to you achieving significant savings on mortgage payments.Below is a list of general reasons why you might want to consider remortgaging your property. 

Lower Interest Rates

– Interest rates fluctuate over time based on economic conditions, and remortgaging could allow you to gain access to lower and more favourable interest rates.

– This can in turn result in lower monthly repayments, which can save you thousands of pounds over the mortgage’s lifetime. 

Access Equity In Your Home

– If your property value has increased over the time that you have owned it, remortgaging unlocks some of this value, built up as equity, that you can access. 

– The additional funds from equity could be used to finance aspects of your life such as home improvements, the consolidation of other debts at lower interest rates, or meeting potential major costs like school fees.

Get A Better Mortgage Deal 

– Your personal financial circumstances may have significantly improved since you first took out your mortgage.

– Remortgaging could allow you to switch to a mortgage product that has added features and incentives that better suit your current needs.

You can also watch this video on Youtube here.

Securing Lower Interest Rates

One of the most compelling reasons to remortgage your property is that it gives you the opportunity to secure lower interest rates. 

When interest rates fall, remortgaging can allow you to lock in a cheaper rate, thereby reducing your monthly mortgage repayments; this is often a key consideration for those who are looking to save money in the long term.

A loan to value (LTV) ratio that is lower, due to a portion of the original loan being paid off or an increase in the property’s value, can also lead to more favourable interest rates, as lenders often offer better deals to those with lower LTV ratios give that they represent a lower risk. 

Remortgaging can therefore be particularly cost-effective for homeowners who have seen their property’s value increase during their period of ownership. It is still crucial to consider the timing of the remortgage, because early repayment charges (ERCs) can apply if you switch deals before the end of your current one. 

These charges have the potential to occasionally negate the savings that were made from lower interest rates, so it’s essential to weigh the total cost before deciding to remortgage in order to avoid this counterintuitive result. 

Releasing Equity for Major Expenses

Releasing equity from your property can be a smart way to raise money for significant expenses while also avoiding taking on high-interest personal loans. 

By remortgaging for a higher amount than your outstanding mortgage, you can release some of your home’s value as cash that can then be used for substantial investments such as home renovations; these in particular, can further increase the value of your property.

For some, the equity that is released can also fund major life events, such as a wedding or university fees, and can be a way to provide financial assistance to family members in need, such as helping your children with a deposit for their first self-owned home.

Many homeowners find that they have substantial equity that is able to be accessed this way as house prices rise over time. Getting mortgage advice before proceeding is highly important, as taking out a larger loan can lead to higher repayments. 

While releasing equity can be beneficial, it increases the total amount owed at the end of the mortgage and can therefore extend the time you will take to pay it off.

Professional advice and consultations can help you to understand these implications, and ensure that releasing equity is definitely the right decision for your circumstances.

Releasing Equity for Major Expenses

Changing Mortgage Types and Terms

Switching to a new mortgage can also offer the opportunity to find a deal with terms that better suit your current circumstances; for example, if your family has grown or your income has been impacted, a different mortgage type could offer more flexibility in the form of payment holidays or by granting the ability to make overpayments without penalty.

In some cases, the aim of remortgaging is to secure a fixed rate that provides stability against potential future interest rate rises. Fixed-rate mortgages can make financial planning easier as they guarantee that your interest rate, and consequently repayments, are maintained for the duration of the deal. 

This can offer peace of mind to investors, especially in difficult times of economic uncertainty.

Alternatively, some may wish to switch from a fixed-rate to a discount or tracker mortgage in order to take advantage of a lower rate or more favourable terms, which could be particularly appealing if interest rates are falling or if you plan on selling the property in the near future. 

Switching mortgage types carries the possibility of adapting your biggest financial commitment to better meet your evolving and unique needs.

"Professional advice and consultations can help you to understand these implications, and ensure that releasing equity is definitely the right decision for your circumstances. "

Advantages and Disadvantages of Remortgaging Your Property

The decision of whether or not to remortgage can be a pivotal one in the world of homeownership, as it could to a better financial situation. However, just like all significant financial moves, remortgaging comes with its own set of pros and cons, which will be explored in the section below to offer some clarity. 

Advantages of Remortgaging Your Property

Remortgaging offers a variety of benefits by enhancing your financial flexibility and providing opportunities to save money or raise funds for important needs. Below are seven key advantages to consider:

1) Access to Lower Interest Rates

– Locking in a lower interest rate through a new mortgage deal can result in lower monthly repayments, potentially saving you money over the whole term of your mortgage.

– If your initial deal has ended and you are currently fixed on your lender’s standard variable rate (SVR), remortgaging can help you to avoid these high interest rates and to find a better one.

2) Potential for Better Mortgage Terms

– Remortgaging allows you to renegotiate the terms of your mortgage and to possibly secure benefits such as overpayment facilities or payment holidays that better match your current financial situation. – For those with an interest-only deal, switching to a capital repayment mortgage could mean that each payment in turn actively reduces the the outstanding loan.

Opportunities to Release Equity

3) Opportunities to Release Equity

– As detailed, remortgaging for more than the outstanding mortgage can allow you to release equity that can help you to fund larger expenses such as home improvements or to pay off other debts.

– This could also be a cost-effective and safer alternative to personal loans or credit cards, especially if it is done when interest rates are lower than for those undertaking unsecured borrowing.

4) Consolidation of Debts

– Homeowners are able to consolidate other debts with higher interest rates into their mortgage, where they might benefit from a lower interest rate; this simplifies their finances with a single payment.

– This can make managing finances easier, although it is very important to consider that spreading the repayment over a longer period could actually increase the total amount paid at the end of the mortgage term. 

5) Switching from Variable to Fixed Rates

– In our fluctuating economic climate, securing a fixed rate mortgage could protect you against future interest rate rises and, with these stable repayments, subsequently offer you a peace of mind.

– Because you will be aware of exactly how much you are needing to pay each month for the deal’s duration, a fixed rate can make general budgeting easier. 

6) Raising Money for Investment

– Remortgaging is able to provide a lump sum for you to use to invest in opportunities that could yield a return, such as a rental property that generates useful rental income.

– This could again lead to long-term financial gains or provide additional income streams, although it is still important to assess all the risks and to ensure that the investment is sound.

7) Adapting to Life Changes

– Life events such as a negative income change, family growth, or retirement could necessitate a reassessment of your mortgage needs, and remortgaging is able to adjust your financial commitments to suit these changes.

– Remortgaging can also help those with fluctuating incomes, such as the self-employed or freelance workers to find a mortgage deal that offers more flexibility than their original deal.

Disadvantages of Remortgaging Your Property

Disadvantages of Remortgaging Your Property

While remortgaging has its benefits, it’s also important to be aware of the disadvantages that can come with it. Below are seven areas to consider:

1) Early Repayment Charges

– If you remortgage before the end of your initial rate deal, you might have to pay an early repayment charge. This can be a significant expense and needs to be fully weighed against any potential savings.

– These charges are a way for lenders to recoup some of the interest that they will lose when you pay off your mortgage early, and they can vary significantly between different mortgage deals.

2) Additional Borrowing Costs

– Remortgaging often involves various fees that can add up and increase the total cost of borrowing, such as valuation, legal, and arrangement fees.

– Calculating this overall financial impact is important, as some homeowners may not realise that the lower interest rate offered by a new deal can be offset by these additional costs. 

3) Potential for Higher Interest Rates

– In the event that your property’s value decreases or your financial circumstances worsen, you may face a higher interest rate when you remortgage which will lead to higher repayments.

– Borrowers with an increased loan to value ratio may not qualify for the most competitive rates; this is because most most lenders reserve the best deals for those who have lower ratios.

4) Lengthening the Mortgage Term

– Some people remortgage to try and reduce their monthly payments but they may not notice that doing so often extends the mortgage term, meaning they will be paying off their mortgage for a longer time than originally thought.

– Paying more interest over the life of the loan could negate some of the benefits brought by a lower interest rate.

5) Changes in Credit Rating

– Your credit rating plays an essential role in the remortgage deals you can access, because if your credit score has dropped since taking out the original deal, you may find it more challenging to secure the best deal.

– A lower credit rating can lead to offers with higher interest rates or less favourable terms, making remortgaging less advantageous.

6) Risk of Over-Borrowing

– Homeowners might be tempted to raise more money than necessary when releasing equity, which is something that leads to spending on non-essential items, which increases their debt levels unnecessarily.

– If repayments cannot be met, over-borrowing against your home puts the property at risk so it is vital that only what is needed and can be comfortably repaid is borrowed. 

7) Market Fluctuations

– The housing market and related mortgage interest rates can be unpredictable. In the event that rates rise after you have secured a new deal, you could actually find yourself paying more than if you had stayed with your existing lender due to the nature of the market.

– For those on a variable rate mortgage, even the best deal can become less attractive if the Bank of England raises rates and triggers an increase in the standard variable rate (SVR) and in higher monthly payments.

Understanding these advantages and disadvantages of remortgaging can help you to make an informed decision that aligns with both your financial goals and your current situation. 

Impact of Remortgaging on Self-Employed

Impact of Remortgaging on Self-Employed

Self-employed individuals may find remortgaging to be a beneficial step, particularly if it leads to a better deal that accurately reflects their current financial situation. It can offer favourable terms that are more accommodating of the variable income patterns that are typical for self-employed workers.

Remaining with the same lender might simplify the remortgage process for the self-employed, because this lender will be very familiar with their financial history. 

Exploring deals from different lenders, however, could potentially unveil more advantageous rates and terms that are personalised to their own circumstances. When self-employed homeowners seek to remortgage, a strong financial track record is the biggest asset that they have to show. 

Lenders often require two or more years of accounts or tax returns to offer the most competitive mortgage deals in their typical efforts to look for some proof of consistent income. 

Switching to a Discount Mortgage

A way to access immediate monthly payment savings is discount mortgages, which offer a reduction on the lender’s standard variable rate (SVR) for a set period. 

Many homeowners are attracted to these products because of how they sometimes offer lower rates than fixed mortgages, albeit with a little less payment security.

For those considering a switch from a current lender’s SVR, a discount mortgage could be an appealing remortgage deal; it is still essential, however, to calculate potential savings against the risk of rate fluctuations that comes with a discount mortgage.

While the initial rate can be lower, discount mortgages are not immune to market shifts, which is why borrowers should be prepared for sudden rate changes. It is also worth noting that after the introductory period ends, most mortgages with discounted rates will revert to the lender’s SVR. 

Costs of Exiting Your Current Mortgage

There are exit fees involved with remortgaging that are charged by the current lender, so this should be taken into consideration. 

To cover the administrative costs of finalising the existing mortgage, a small exit fee is often required to cover the administrative costs of finalising the existing mortgage.

Exit fees are variable, and it’s critical to understand how they might affect the total cost of remortgaging and to include these fees in the overall financial assessment, to ensure that the decision to remortgage is economically sound.

When comparing remortgage deals, checking if the new lender covers some or all of the exit fees from the previous mortgage is worthwhile, as this is a common incentive used by lenders to attract borrowers. This can also significantly impact the cost-effectiveness of the new mortgage.

Buying a New Property with Remortgaging

Buying a New Property with Remortgaging

Remortgaging can be used as a strategy to raise funds for purchasing a new property, whether this is a primary residence or an investment. For many homeowners, the equity that is built up in their current home will be able to provide a substantial contribution towards the purchase of a new property.

For those looking to expand their property portfolio or to move into a home that better suits their evolving needs, this approach can be particularly attractive. The new lender will assess the value of the existing property and the amount of outstanding mortgage to determine exactly how much can be released for the new purchase.

Most mortgages allow for this type of financial manoeuvre, but seeking mortgage advice from a professional is still vital to ensure that the new mortgage aligns with long-term financial goals.

Remortgaging with the aim of buying a new property should be carefully considered, because it increases the total borrowing against the homeowner’s biggest asset.

A Case Study on Remortgaging Property for Better Terms

Below is a case study that should hopefully help to illustrate the reasons behind a choice to remortgage a property. 

As a real-world example, it should provide a relatable context and demonstrate how remortgaging can be a beneficial financial decision, showing readers how the process of remortgaging works in practice, with a focus on the UK housing market.

John is a self-employed graphic designer who has seen a steady increase in his business over the past few years, causing his income to become more stable. 

As a result, he is considering remortgaging his property to secure a better mortgage deal than his current one with his existing lender, which has a standard variable rate (SVR), and he’s aware that he could save money by switching to a deal that offers a lower interest rate.

He begins by seeking mortgage advice in an attempt to understand the potential savings that he could make by moving away from the SVR deal, and also the fees that he might incur in the process. 

John’s hired advisor points out that the long-term savings from a lower interest rate could outweigh the initial costs that may come from exit fees from his current mortgage. They also discuss the possibility of a remortgage deal that could offer better terms for his situation as a self-employed individual.

After comparing offers from various lenders, John finds a competitive fixed-rate mortgage that provides more stability than the SVR and that would reduce his monthly payments, while also offering the flexibility that he needs. It also allows for overpayments without penalties, which is ideal for his variable income. 

John decides to proceed with the remortgage as he is confident that it aligns with his financial objectives and offers a more cost-effective solution for managing the property, his biggest asset.

Key Takeaways and Learnings

This article has covered a range of aspects concerning the reasons to remortgage your property. Here is a summary of the key points to remember in order to aid reflection about whether remortgaging is the correct move. 

– Assess your current mortgage deal and compare it with other available mortgage deals in order to determine if a switch could save you money.

– Consider remortgaging to release equity from your home if you require funds for significant expenses, such as home improvements or to consolidate other debts.

– Try to be fully aware of the costs associated with remortgaging, including early repayment charges and exit fees, which have the ability to affect the financial benefits of a new deal.

– If your personal or financial circumstances have changed, in the form of a rise in income or the growth of your family, for example, remortgaging can adapt your mortgage to better suit your needs.

– Fixed-rate mortgages can offer stability against interest rate rises, while discount mortgages might provide short-term savings that come with certain risks.

– Self-employed individuals should gather financial records to present a strong case for remortgaging to lenders and potentially secure more favourable terms from them.

Remortgaging your property can therefore present several financial advantages, from securing lower interest rates to adapting the mortgage to changes in your life; it is still important, however, to approach remortgaging with a full understanding of the implications, including any potential costs and the impact on your overall financial commitments. 

It is again often advisable to seek mortgage advice from a professional to navigate the complexities of remortgaging and to ensure that the decision to switch is indeed the most cost-effective and suitable option for your needs. 

By carefully considering your options along with the information presented in this article, you will be able to make an informed decision about remortgaging that aligns with your financial goals.

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Meet the author

William Jackson

William is a leading writer for our site, specialising in both finance and health sectors.

With a keen analytical mind and an ability to break down complex topics, William delivers content that is both deeply informative and accessible. His dual expertise in finance and health allows him to provide a holistic perspective on topics, bridging the gap between numbers and wellbeing. As a trusted voice on the UK Care Guide site, William’s articles not only educate but inspire readers to make informed decisions in both their financial and health journeys. 

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