What is a re-mortgage and why do people re-mortgage? When you re-mortgage your property you move your mortgage from one lender to another. The main reasons why people re-mortgage are to get a better deal or to borrow more money.
Generally speaking when people take out a mortgage they choose a “mortgage product,” e.g. a fixed rate. At the end of the product term the interest rate usually moves to the lender’s standard variable rate. This in many cases will not be a competitive rate of interest. At this point there are three options, do nothing, switch to another mortgage deal with the same lender or re-mortgage.
Sometimes the best deal or a very competitive one will be with the same lender, however often this is not the case. Many people therefore move lender to get a better deal. There are costs involved with a re-mortgage, but some lenders pay for the legal work and the survey to make re-mortgaging to them more attractive and affordable. The costs involved need to be weighed up against the potential savings to make sure switching is the right course of action. In many cases the savings can be significant.
Re-mortgages are also used as a way of raising money. The money can be used for many reasons but a popular choice is to fund home improvements, such as an extension or conservatory. When the re-mortgage takes place the new mortgage applied for is the outstanding mortgage balance plus the extra amount you require.
Some people also re-mortgage to consolidate their existing debts, such as credit cards or a car loan. This can be attractive as the rate of interest payable to the mortgage lender can be significantly less than the rate of interest payable on the loan, resulting in greatly reduced monthly outgoings. However, as a word of caution, the mortgage is often payable over a much longer timeframe than the loan being consolidated. This can result in the overall amount of interest paid to the mortgage lender being considerably higher than what would have been paid to the loan company. Also the loan being consolidated will move from being unsecured to secured on your home. This therefore needs careful thought and it is a good idea to seek professional advice before re-mortgaging for this reason.
One further word of caution, whilst you can re-mortgage at any time, some mortgage deals have tie in periods. This means that if you re-mortgage during that period you will have to pay your mortgage lender a redemption penalty. These penalties often apply for the term of your product, e.g. if you have a five year fixed rate they apply for the five year period, however, they can go on for longer. It is important to understand whether redemption penalties apply and if they do how much they are. It may still be beneficial to re-mortgage and pay the penalty, or it may make sense to wait until they no longer apply.
If you are looking for re-mortgage advice we can help. We offer a full mortgage advice service, providing advice tailored to your needs. As whole of market advisers you can be confident we will be able to find the right re-mortgage for you.
We do not charge our clients a fee for our mortgage service unless we are arranging a shared ownership or an equity release mortgage.