What is re-mortgaging?
Re-mortgaging is when you take out another or a different kind of mortgage without moving house. Usually, this starts as your current deal with your lender is coming to an end. It is also possible to re-mortgage before the end of a mortgage term, which will be covered in more detail later in this article.
Mortgage deals can last anywhere between two and ten years – the most common are two and five-year fixed deals. At the end of your mortgage term, you will nearly always get a letter from your lender offering you a new deal. This should prompt you to start shopping around for a new deal which is when an independent mortgage broker can be worth their weight in gold. If you do nothing and your mortgage moves onto the lender's ‘standard variable rate’ then this nearly always turns out to be more costly than moving onto a new deal.
An independent mortgage broker can tell you about all the deals available to you on the market and give you truly unbiased advice on the best mortgage deal for you. Independent mortgage brokers are not restricted to a set of products from one provider, which can save you money. Our mortgage brokers know the process inside out and can guide you through the application paperwork and timelines, which will improve your chances of acceptance and the speed in which it is processed.
Can I re-mortgage early?
If your mortgage deal is coming to an end within the next three to four months, then it’s time to speak with a broker, who will start searching the market on your behalf for the most suitable mortgage deal for your situation. With the current unpredictable nature of mortgage rates, starting the review process as early as six months in advance of the end of your current mortgage, could be prudent.
Mortgage offers typically have a six-month life span. This means if rates reduce during the six months before your mortgage offer is due to go live, then a broker can contact the lender and select their new lower rate. If rates increase before the deal starts you have already secured the earlier, cheaper rate. This means you secure the best possible rate on offer.
If your mortgage is not near the end of the term agreed but you find yourself needing to re-mortgage or exit your current deal, you could find that you are forced to pay Early Repayment Charges (ERC). The ERC charge normally reduces each year from the date the mortgage was first taken out. For example, the ERC could be 5% of the outstanding loan in the first year of a five-year deal reducing by 1% each year that passes until you have reached the deal end and have swapped to the lenders standard variable rate.
If your mortgage is not due to end soon but you need to change your current deal, it is advisable to seek advice from our independent mortgage brokers who can talk through your options and discuss any ERC costs versus any potential savings that could be made from re-mortgaging early.
Can I save money by re-mortgaging?
This is dependent on your personal circumstances. Our friendly highly qualified planners take the time to get to know clients and their personal and financial circumstances, in order to find a mortgage solution to meet their needs.
The ideal scenario would be that you manage to secure a new deal with a lower rate than your previous one, however if this is not possible there are other ways to make savings. Monthly savings can be made by increasing the length of the mortgage so the amount you pay each month is reduced. Alternatively, you can look to save over the lifetime of a mortgage deal by reducing the term, meaning you will pay a higher amount each month but as you deal runs for a shorter period, you will incur less interest and pay less over the course of the deal.
What do I need to consider when re-mortgaging?
There are lots of things to consider with any mortgage. Firstly, you need to make sure that your mortgage term fits in with your life plans. Your mortgage will normally need to be fully paid off before your planned retirement, as your income is likely to reduce at this time.
Other things to consider include what age do I want to retire and how does this fit with the other people named on the mortgage? Some lenders like mortgages to be settled before you reach 70, others may consider a term that goes up to the age of 75. This depends on whether the lender can see your occupation being sustainable to that age.
The next thing to consider is the length of the deal you may want or need. If you enter into a deal for five years and you need to settle the mortgage before the end of term you will be subject to Early Repayment Charges.
The questions to ask yourself in relation to mortgage term are:
- Will I want to move within the deal period?
- Will I need more money within the deal period?
- Will I need to sell the property in the deal period?
- Will my circumstances change in the deal period?
If your circumstances change unexpectedly, not all is lost as most mortgages can be moved to a new property. Some providers may consider additional lending however this is specific to each mortgage provider and is also dependent on your circumstances.
What are the different types of mortgages?
Fixed rate mortgage
With a fixed rate mortgage, the interest you pay remains the same throughout the mortgage term, regardless of what happens to interest rates in the market. The advantage of fixed rate deals is that you know what you’re paying each month for the term of the deal. The downside is that if rates go down, you do not benefit from a reduction and remain on the same rate for the deal term.
Standard variable rate mortgage (SVR).
A standard variable rate (SVR) is a mortgage rate that you are moved onto to once your fixed-rate, tracker, or discount mortgage ends. Unlike a tracker mortgage, SVRs do not track above the Bank of England Base Rate at a set percentage, instead an SVR mortgage rate is determined by your mortgage lender which can increase or decrease at any time not only after Base Rate changes. This means with a SVR mortgage you cannot guarantee what your payments will be and can be more expensive than other mortgage types.
Discounted mortgages
A discounted rate is usually a set amount of discount against the lenders SVR (Standard variable rate). So, if the lenders SVR is 5% and your discount is 1.5% then you would pay 3.5% but SVR rates vary and can go up and down.
Tracker mortgages
Tracker mortgage rates are variable rates that track the Bank of England base rate plus a fixed percentage. For example if the base rate is 3% and your tracker is 1.5% then you would pay 4.5% varying. These rates improve when the Bank of England Base Rate falls but get more expensive when the Base Rate rises.
Other types of re-mortgages
Interest only versus repayment mortgages
Nowadays, the majority of new mortgage deals are repayment mortgages, where part of your payment is used to repay the interest on the mortgage debt and part goes towards repaying the actual debt. This means that as long as you maintain your payments by the end of the mortgage term you will have paid off your mortgage debt. This is the least risky method for buying your home.
‘Interest only’ means, what it says, you only pay the interest on the mortgage. This means that at the end of the mortgage term you would need to find a way to pay off the mortgage debt. This could be via various methods including but not limited to investment, pension or down-sizing. Lenders are much more reluctant to consider interest only mortgages and will need to ensure that your repayment method will be sufficient, to ensure they receive the money back at the end of the term.
Equity Release
If you’re 55 or over, you could consider Equity Release. This provides a lifetime mortgage, which enables you to unlock some of the value from your home to fund things like future proofing your home, helping family or ‘ticking things off your bucket list’. Lifetime mortgages can help you to enjoy your later life and can also help to reduce inheritance tax liability.
No proof of income is required for a lifetime mortgage and there are no mandatory monthly payments to make if you don’t wish to. Interest is added each year, both to the initial loan amount and any interest previously added, which you can choose to pay off. However, the loan and interest are usually repaid from the sale of your home, when you (last person, for joint lifetime mortgages) die or need to go into long-term care.
It is important to seek advice from a qualified broker when considering Equity Release as most mortgage brokers are not qualified to advise due to the extra regulation. It’s also advisable to ensure that they are a member of the Equity Release Council who promote best practices for all customers who take out equity release and ensures policies meet certain guarantees.
Finding the right mortgage product for your needs
There isn’t a 'one size fits all' mortgage, our planners will work with you to find the best solution to suit your circumstances.
We are fully independent brokers, with access to the whole of the market, allowing our planners to select products from a comprehensive and established panel of lenders, including those not available through high street banks or providers. This helps us ensure our clients always receive tailored solutions at highly competitive mortgage rates.
Re-mortgaging in the next 6 months?
You can use our mortgage payment calculator to work out how much your mortgage will cost you before securing a mortgage or re-mortgage. Use our mortgage calculator to understand what the approximate monthly payment on a repayment mortgage or to understand:
- The impact of interest rate increases on your monthly payments.
- how the mortgage term, interest rate and deposit amount impact your monthly payments?
Did you know you can secure a mortgage 6 months in advance of your current mortgage deal coming to an end. In this way you can be sure to secure the best rate available to you in the 6 months leading up to your current deal ending.
How we can help
Starting with a free phone or video consultation, you will have a dedicated planner who will meet you to understand your situation. They will determine what your requirements are, how much you can borrow and then search the market for a solution to fit your needs.
A further meeting will then be arranged to discuss our findings and if you decide to go ahead, your planner will make the mortgage application on your behalf and manage all communications with the lenders for you, including chasing your mortgage through to completion.
Contact us for a free, no obligation consultation to discuss your initial enquiry by calling 0330 441 2244, completing our enquiry form or email [email protected]