Buying a house is likely to be the biggest financial commitment of your life, so you want to spend every penny paying for it wisely. Choosing the right time to remortgage could save you money but knowing when to stay with your current mortgage is just as important.
Being savvy about the right time and reasons to remortgage your property could enable you to pay off your mortgage years earlier and at considerably less expense. However, if you don’t remortgage once your current deal ends, it will mean you automatically switch to the lender’s SVR (standard variable rate). This may result in an increase in your monthly payments and it could cost you hundreds or thousands of pounds a year.
With so many benefits and disadvantages at play, let’s look at the reasons you might choose to hold back on remortgaging your property.
What Is Remortgaging?
Remortgaging your home means switching to a new mortgage product with a new lender. The main reason for changing mortgages is to find a better deal, essentially saving you money on the interest you pay on your loan.
Borrowers who are in the process of switching their mortgage will want to source the most competitive deal, which means shopping around to find out what rates lenders are offering. In times of financial uncertainty, fixed rate mortgage deals will offer a repayment that doesn’t change over the length of the mortgage. In times of financial stability, moving your mortgage to a tracker or a variable rate can keep your repayments low.
Ready to Remortgage?
Is now the right time for you? See our page to compare remortgage rates, learn more about the process and find even more answers in our remortgage FAQs.
When Should I Not Remortgage?
There will be times that remortgaging isn’t the best option for you and could cost you more than the remaining SVR of your current provider.
We’ve outlined some of the less desirable times to remortgage so that you can avoid these pitfalls:
1. Your Outstanding Mortgage Balance is Low
Once your mortgage debt has fallen substantially, the benefit of saving money with a lower interest rate could be completely cancelled out by the fees and costs involved in the remortgage. Some lenders will not offer loans to borrowers if the debt is less than £25,000 or even up to £50,000, meaning it would not be financially beneficial to remortgage.
2. You Are Currently on a Low-Rate Mortgage
If your current mortgage product is extremely competitive and there’s nothing on offer at present that can challenge it, don’t switch. Do be mindful though; circumstances can change swiftly in the financial world. Keep your eye on deals and rates as conditions change all the time.
3. You Have Little Equity Built Up in Your Home
Equity is the difference between the current market value of your home minus the outstanding amount you owe on your mortgage. For example, if your home is worth £200,000 and you owe a debt of £125,000 on it, the equity you’ve built up is £75,000. The amount of equity on your home will fluctuate over the years – this is dependent on house prices and the payments you’ve made on your home. Should the value of your house fall, so will the equity in your home.
There are also times when your home can slide into what is known as negative equity. This means that your home is worth less at present than when you bought it.
Both of these scenarios can make it more challenging to obtain a remortgage. If you have low equity in your home and you’re looking to borrow more than 80% of the value of the property, lenders may see you as a high risk applicant. The result of this can mean higher interest rates and less favourable conditions, which could be less desirable than the rate you’re currently on.
If you do find yourself needing to remortgage despite low equity, it’s worth getting in touch with one of our expert brokers. They’ll have knowledge of a wide selection of products and providers, making it more likely that you’ll find a competitive deal.
4. You’re Going to Pay a Hefty ERCs (Early Repayment Charges)
Many mortgage products come with an early repayment charge penalty should you try to leave the mortgage before it comes to the end of the incentive period. An ERC could cost you substantially, possibly more than you would save by switching deals.
If this is the case, and you’re close to the end of the term on your current mortgage, it might be worth sourcing a new deal. It could also be worth checking your mortgage illustration documents to see at what point in the term of the mortgage the ERC penalty ends. Find out how to save on your mortgage (including ERCs).
5. You’ve Had Problems with Credit
Poor credit can impact the lender’s willingness to offer you a new product. If you’ve had issues with missed or late payments, have defaults on your credit file, a CCJ, or you on a debt management plan, you could be considered to have issues with credit.
Banks may view you as a risk and likely to default on your payments if they see you have struggled with credit in the past. If they do offer you a new product, you could find that the rates and conditions are the same, or less preferential, as the current SVR you’re paying. If you consider that you’ll be paying fees and costs to switch mortgages, this may not be a suitable option. Read our Bad Credit Mortgage Guide for more information.
6. Your Finances Have Changed
There are many reasons your finances might have changed since you last took out a mortgage product. You may have reduced your hours, changed jobs, or become self-employed. All of this could affect you financially. Banks are legally required to investigate your outgoings. If they believe that you cannot afford to make the repayments on a mortgage, they won’t offer you a deal, or the remortgage rates will be greater.
It could be advisable in these circumstances to remain with your current provider on the SVR. Or you could ask your existing lender for a product transfer to a different type of mortgage. Your current provider could offer you a reasonable alternative to what you’re paying now.
Contact Us to Find the Best Option for You
All the circumstances above could affect the products you’re offered and the rates you’ll pay on future mortgages. Whatever your situation, consult a professional mortgage adviser like John Charcol as we can help you figure out your best and cheapest option.
If you’d like to talk to one of our experts, enquire online or give us a call today on 0330 433 2927.
Compare the latest remortgage rates and deals with our comparison tool and discover how this type of mortgage works, the process and if it’s suitable for you.
9 Reasons to Remortgage
Read our nine reasons why you should consider remortgaging your home. You can save a lot of money on remortgaging, so make sure you get the best deal.
Remortgaging means to switch to a new deal with a different lender but stay in the same property. Learn about remortgage costs, valuations and see our advice.
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Learn how to find the best remortgage rates & remortgage deals here. We go through what to consider when comparing deals, which lenders there are & more.
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Wondering if you can get a remortgage while self-employed or on part-time hours? See our guide to learn what information you need to give to your lender.
How Much Can I Borrow on a Remortgage?
Find out how much you could borrow on a remortgage in our guide. We go through how lenders determine what to lend you, how LTVs work and more.
On this page you’ll find our detailed mortgage terminology glossary. There’s a lot of jargon out there but we’re here to make it easy.
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