Remortgaging involves switching your mortgage to a new deal or lender, potentially to reduce your interest rate or adjust your loan terms, offering financial flexibility.
What Is Remortgaging and How Does It Work? Learn About the Pros, Cons and How Remortgaging Works. Find Out Here if this Could Be the Solution for You.
This article contains tops tips from our experts, backed by in-depth research.
Katherine Read Is a Financial Writer Known for Her Work on Financial Planning and Retirement Finance, Covering Equity Release, Lifetime Mortgages, Home Reversion, Retirement Planning, SIPPs, Pension Drawdown, and Interest-Only Mortgages.
Bert Hofhuis Is a Founder & Entrepreneur Simplifying the Complexities of Later Life Planning. He Navigates the Intricacies of Equity Release, Lifetime Mortgages, Reverse Mortgages, and Wealth Management With Clarity and Expertise.
Paul Is an External Compliance Expert and the Director of Alpha Capital Compliance Limited, Known for Its No-Nonsense Approach to Financial Compliance. With Expertise in Regulatory Updates, Compliance Auditing, and Due Diligence, Paul Is a Trusted Name in UK Finance.
Francis Hui Is Senior Risk Manager With a Wealth of High-Level Experience Across the Industry, and a True Expert at Helping UK Citizens Make Smart Financial Decisions and Manage Risk.
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Key Takeaways
The process in the UK involves five stages: initial research, speaking to a broker, applying to a lender, receiving a mortgage offer, and finally, the legal completion.
This can impact your financial situation by potentially reducing your monthly repayments, shortening your mortgage term, or releasing equity from your property for other expenses.
The benefits include the potential for better interest rates, the opportunity to switch to a more flexible mortgage, and the ability to release equity.
The best time to consider this is usually when your current fixed-rate deal is nearing its end, or interest rates in the market are predicted to rise.
Risks or disadvantages include early repayment charges, additional fees, and the potential for negative equity if house prices decrease.
"How does equity release work?" is a question many homeowners find themselves asking as they consider tapping into the value of their homes.
In This Article, You Will Discover:
With the average monthly remortgage payments on a £100,000 mortgage expected to rise from £424 to £644 with 6% interest rates,1 could remortgaging help?
When Should You Not Remortgage?
You may want to avoid remortgaging if:
You have to pay large early repayment charges that outweigh the benefits of remortgaging
Your outstanding mortgage balance is very small
Your financial situation has worsened, which might affect your eligibility
How Could Remortgaging Benefit You?
Remortgaging could benefit you by potentially reducing your monthly payments if you secure a lower interest rate.
It could also allow you to borrow more money for home improvements or debt consolidation, or switch to a more flexible mortgage deal that suits your current circumstances.
There may be disadvantages to remortgaging depending on your circumstances and your existing plan.
The disadvantages of remortgaging may include:
Early Repayment Charges (ERCs):4 Your current mortgage may have penalties for overpayments or for ending the mortgage term early. These can be especially significant if you're within an initial fixed or discount period.
Exit Fees: Your current lender may charge an administration fee for leaving your existing mortgage.
Upfront Costs: The new mortgage may come with its own set of costs including booking fees, valuation fees, and legal costs. In some cases, these could outweigh the potential savings.
Lengthened Payment Term: Unless you specify otherwise, remortgaging can reset the clock on your mortgage term, meaning you could end up making repayments for longer.
Debt Consolidation Risks: If you're remortgaging to consolidate debts, while this may lower your monthly payments, it can often increase the amount you pay back in total and extend the loan term.
Remember, while this list of potential disadvantages can help guide your decision, everyone's situation is unique.
You should consult with a financial advisor or broker to understand what the best option is for you.
What Will It Cost to Leave Your Current Mortgage?
Remortgaging could result in paying various fees such as arrangement fees, valuation fees, legal fees, or broker fees.
You could potentially face early repayment charges and exit fees on your current mortgage.
Also
Remortgaging could mean a longer term, which could increase the overall cost.
What Range of Remortgaging Deals Are Available?
There are various remortgaging deals available in the market, including:
The process begins with an assessment of your needs, market research for better deals, an application, and approval.
Once the new mortgage is approved, it pays off the old one, and then you continue making payments under the new terms.
The procedure may involve certain costs such as valuation fees, legal fees, and potential early repayment charges from your existing lender.
Remember, it’s essential to consider these costs when deciding whether remortgaging is financially beneficial.
How Does Remortgaging Affect My Financial Situation?
Remortgaging can significantly impact your financial situation.
If you’re able to secure a lower interest rate, your monthly mortgage payments could decrease, freeing up cash for other expenses.
Alternatively, you might choose to shorten your mortgage term, which could increase your monthly payments but save you money in the long run.
However, remortgaging comes with associated costs like legal fees and potential early repayment charges.
You need to consider these costs against the potential savings to ascertain that remortgaging enhances your financial situation.
What Are the Benefits of Remortgaging My Home?
Remortgaging your home can offer several benefits.
If you secure a mortgage with a lower interest rate, you can decrease your monthly payments and save money over the term of your loan.
Additionally, remortgaging can provide an opportunity to release equity from your home, providing a cash lump sum for investments, home improvements, or other expenditures.
Moreover, remortgaging might allow you to switch from an interest-only mortgage to a repayment mortgage, enabling you to gradually pay off the loan capital and not just the interest.
When Is the Best Time to Consider Remortgaging?
The best time to consider remortgaging is typically near the end of your current mortgage deal, before shifting to your lender’s standard variable rate, which can often be higher.
It’s advisable to start exploring remortgage options about three months before your existing mortgage rate ends.
However, the ‘best time’ can also revolve around personal circumstances, such as a change in income, or market conditions like falling interest rates.
Always remember to take these into account when considering remortgaging your home
Are There Any Risks or Disadvantages to Remortgaging?
Yes, there are potential risks and disadvantages to remortgaging.
For example, if you break your current mortgage deal early, you may face expensive early repayment charges.
Also, shifting to a new mortgage may come with fees such as arrangement and valuation fees, which can be quite costly.
Moreover, if your home has decreased in value, or your financial circumstances have changed, you may not have as much equity in your home as you think. T
his could impact the mortgage deals you’re eligible for, potentially making remortgaging less advantageous.
Can I Remortgage if My Property Value Has Decreased?
Yes, you can remortgage if your property value has decreased, but it may be more challenging.
You may end up in a higher loan-to-value (LTV) bracket, which could mean higher interest rates and fewer available deals.
Will Remortgaging Require a Property Valuation?
Yes, most lenders will require a property valuation as part of the remortgaging process.
This is to assess the current value of your home, which influences the loan-to-value ratio and the deals available to you.
Can I Remortgage if I’m Self-Employed?
Yes, you can remortgage if your are self-employed.
However
You will need to provide evidence of your income, such as tax returns and business accounts, and the process may be more complex.
How Often Can I Remortgage My House?
You can remortgage as often as you like, but it’s usually done when the current deal ends.
Typically, a mortgage term spans around 25 years, with the most common arrangements being 2, 5, and 10-year fixed-rate deals.7
Remember each remortgage may involve costs and potential early repayment charges.
Do I Need a Good Credit Score for Remortgaging?
Yes, a good credit score increases your chances of securing a remortgage deal with favourable terms.
Lenders will assess your credit history as part of their decision-making process.
How Does Remortgaging Work at HSBC?
At HSBC, the remortgaging process8 involves a review of your financial situation, a valuation of your property, and a review of your credit history.
HSBC offers various mortgage products to choose from, and the entire process can usually be done online or over the phone, with the help of mortgage advisors.
In Conclusion
Understanding the ins and outs of remortgaging is essential to make informed financial decisions, considering factors such as the right timing, available deals in the market, and potential advantages and disadvantages.
These elements significantly impact your mortgage management and financial future.
Whether it's reducing monthly payments, releasing equity, or securing a more flexible deal, weighing the benefits against the possible drawbacks is crucial, while keeping in mind that terms will vary based on your financial situation and property value.
Professional financial advice can be invaluable in navigating these complexities.
In essence, a thorough understanding of 'how does remortgaging work' can empower you to better manage your mortgage, adapt to changing circumstances, and ultimately secure your financial future.
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