What is a remortgage?
During the process of paying off your mortgage, it’s likely that you will have a substantial amount of equity tied up in the value of your property. A remortgage is the process of taking out another mortgage on your home. This is either to replace your current mortgage or to borrow money against your property. This can be done by speaking with a mortgage adviser about a mortgage application or by using our mortgage calculator.
Why might you decide to remortgage?
People who choose to remortgage their property, do so in order to:
Remortgaging can help you reduce your mortgage payment saving money by simply switching your mortgage provider. This is usually done at the end of the contract to avoid any early repayment penalties. It may be worth switching providers as this can often give you lower mortgage payments and interest rates, allowing you to save the money you have left over at the end of each month.
Many people who are on an initial fixed rate mortgage may find that their interest rate increases after the first couple of years. To avoid your mortgage payment increasing, remortgaging your home and taking out a new mortgage with a different provider can be a solution to avoiding these cost changes depending on the APRC representative.
Remortgaging can also be used to release equity from your home. This is done by taking out a new mortgage that is larger than your existing mortgage. Remortgaging in this way is often used for consolidating debts, making home improvements or to fund something else. Another option for raising money against your property is by taking out a secured loan.
Fixed remortgage or tracker remortgage?
When making a remortgage application the next step is to choose between a tracker or fixed rate remortgage. This is an individual decision and not something that should be made solely by reading something you’ve found online and it’s well worth speaking with a mortgage adviser or using a mortgage calculator. In recent years, fixed rates have compared well against trackers and regularly turned out less expensive, yet this may not generally be the case as they will be affected by the APRC representative figure, which gives an estimate on the interest you are likely to be making within your mortgage payment.
If you like to have a consistent mortgage payment amount and decide that you may be put in a difficult situation if that rate that goes up or down, then a fixed rate would be the best option for you– regardless of whether after 2 years it worked out more costly. On the off chance that you choose a fixed rate rather than a less expensive tracker and rates don’t move over the agreement time frame, you will pay a higher amount on your mortgage repayments.
When remortgaging might not be the best option
Remortgaging a property might work well for some but may not be the best option for everyone, especially if:
- Your mortgage debt is small
- Your repayment charge is large
- You have little or negative equity in the property
- Your home’s value has dropped.
If you would like to find out more information, then as a mortgage broker you can speak to our mortgage advisor experts today, enquire below and fill out a mortgage application online or use the mortgage calculator comparison tool.
* APRC Representative Example Mortgage amount £170,995 (including £995 mortgage lender fee), 64 payments of £748.30 at a fixed interest rate of 2.28%, followed by 236 mortgage repayments of £889.60 at a variable rate of 4.24%. Over a term of 25 years, giving a total amount payable of £258,861 at an APRC representative of 3.6%. The contract will be secured against your property.
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Why Clever Mortgages?
At Clever Mortgages we can offer you the support and advice required to ensure you get the right mortgage for your first home. We provide access to a comprehensive range of mortgages from across the market. We are also authorised and regulated by the Financial Conduct Authority (FCA) and adhere to the Treating Customers Fairly (TCF) guidelines, so you can be confident that we will treat you with integrity and only recommend products that meet your needs.
A fixed rate mortgage is where your interest rate stays the same for a set time period (usually between 2-10 years). As a result your repayments are exactly the same each month, regardless of what happens to other mortgage rates. These types of mortgages are popular with first time buyers and people looking to budget each month, especially those who have suffered from a poor credit history.
The main downside to a fixed rate mortgage is that if mortgage rates go down you can be paying a higher amount than you would on a variable rate mortgage. However, this can also go in your favour and if interest rates increase you can be paying less than you would on a variable rate.
Every lender will have their own standard variable rate (SVR), which is considered their basic mortgage. This interest rate goes up and down, usually in line with the Bank of England’s interest rates but the lender is free to raise this at any time.
This means that your monthly payments can go up or down depending on what the interest rate is at a given time. Some months you could be paying more whilst other months you could be paying much less.
A discount mortgage is when a reduction is applied to the lenders Standard Variable Rate (SVR) for a certain length of time (typically 2-3 years). Discount mortgages are attractive as they can allow you to pay slightly less than the bank's standard rate. However as the SVR can still fluctuate they are not ideal for people who are looking to stick to a strict long term budget.
A tracker mortgage is basically a type of variable rate mortgage. What makes them different from other variable rate mortgages is that they follow – track – movements of another rate, the most common rate that is tracked is the Bank of England Base Rate.
A capped mortgage is the same as a variable rate mortgage; however the interest rate can never rise above a set “cap”. These mortgages can work well for people who can budget for different mortgage repayments each month but want the reassurance that their payments will never go above a certain amount.
Offset mortgages are linked to a savings account as well as your current account. Your savings will be 'offset' against the value of your mortgage, and you'll only pay interest on your mortgage balance minus your savings balance. These types of mortgages work well for higher earners or people who have a good amount in savings that they want to use towards paying their mortgage.