Should I Remortgage My Property Now?

When you remortgage, you’re taking out a new mortgage on a property that you own. There are a couple of reasons why you might want to do this, perhaps you’re considering a switch to a cheaper mortgage deal or you want to borrow money against the value of the property. This may sound like a difficult task, but it’s simple and if you plan a remortgage deal properly you can save a lot of money. A property owner can apply to remortgage when they like, but there isn’t a guarantee of approval and choosing the right time to apply is important.

When is the Optimal Time to Remortgage?

There is no one-size-fits-all answer to this question because it will depend on your specific financial situation. Ideally, you should be considering a remortgage when it will improve your finances with lower overall interest, reduced monthly payments or access to additional funds that can be used for investing or dealing with important events. If this sounds good, the next question is when you should make the remortgage application. There are several scenarios where remortgaging could be the best move for your finances. They are:

Remortgaging with Built Up Equity

When the value of your property has increased it’s time to celebrate your good fortune. This is also great for your finances because you’re probably eligible for a better mortgage rate. The main drawback could be early repayment charges which can be significant.

Remortgaging to Overpay and Pay Off the Mortgage Faster

Certain lenders allow overpayments, but many don’t because they stand to make less money from the overall interest that you will pay for the full term. If you remortgage with a new lender, you may be able to reduce the loan size to secure a better deal. Be careful, the exit fees and/or early repayment fees can limit the effectiveness of this approach. 

Remortgaging When a Deal is Ending

A favorable fixed-rate or tracker mortgage is a short-term loan that typically lasts 2-5 years. After this term, the lender is moved over to a standard variable rate deal which usually has a higher interest rate. To avoid this, remortgaging to secure a new deal 3-4 months before the current deal expires, it could be the right move. 

Remortgaging When the Interest Rates Rise

The interest rates can rise rapidly, this recently happened in 2022-2023 and this can be expensive if you’re locked into a variable interest rate mortgage. In this scenario, the smart play is to lock yourself into a competitive fixed-rate mortgage. This will offer some protection against future interest rate hikes and keep that extra cash in your bank account. But, it’s important to bear in mind that an early repayment charge (ERC) may be a significant deterrent. Any potential savings must be weighed up against these ERC costs to ensure that you’re getting a good deal. The silver lining is that most economists are not anticipating rate rises in the foreseeable future. The base rate is at the highest it’s been for sixteen years and quarter-point cuts have been forecast up to the end of 2025.

Why Would a Remortgage be a Bad Move?

There are certain times when you shouldn’t consider remortgaging because it will be detrimental for your financial situation. First, if you are presently in negative equity on your property it’s highly unlikely that you could even find a remortgage deal. If you’ve recently become self-employed or you’ve stopped working, you won’t get a remortgage deal. 

Any reputable lender will not take a risk on a borrower that cannot prove that they have a stable income. If your financial circumstances are very different than they were when you initially took out the mortgage, this may go against you. Finally, if you’ve got some major problems with your credit rating, you need to repair it before remortgaging is a viable option. 

Is Now the Right Time to Remortgage?

There have been many interest rate rises during the last year and this has convinced many property owners that this may be the best time to remortgage. Making a switch to a fixed-rate mortgage with a reasonable rate of interest may be the right move. But, many lenders have the potential base rate increases factored into their mortgage products and the associated interest rates on offer. It’s important to bear in mind that mortgages are typically based on the swap rates which are forward-looking. This means that the base rate is often not the ideal indicator of what a future mortgage interest rate could be. So, before you consider remortgaging it’s important to discuss your options with a broker. Banks will use the base rate to determine what the cost of borrowing would be for a mortgage. But, there is no way to determine with any degree of certainty what that base rate would be for longer than a few months into the future. The base rate could be lower or higher than a fixed-rate mortgage deal which should be factored into your plans. Although inflation is trending lower now from its recent high, there could be interest rate rises in the future. The main benefit of a fixed-rate mortgage deal is that the borrower always knows what their monthly repayments will be. These monthly payments can be relied on further into the future than a shorter term variable rate mortgage. These types of mortgage deals tend to fluctuate regularly in line with the base rate. The main benefit of the variable rate mortgage is that it moves with the current rates and borrowers are not locked in. This is a more flexible solution that meets the needs of people that like to stay on the move to find the best deals. 

In Conclusion

The remortgage process is relatively simple but it can take a while and the circumstances can change quickly. So, although it may seem like the ideal time to remortgage this may not be the case in a few months' time when the application completes. A remortgage typically takes 4-8 weeks after the application, but this process will go faster if you supply the proper documents quickly. This would include payslips, proof of earnings, upcoming contracts and more. Before you make a remortgage application, take some time to evaluate your circumstances and this will help you to make better decisions.