Remortgaging means to replace the current mortgage on your home with a new one, or to raise some extra money from the equity you have built up in your property by increasing the size of your mortgage.
The mortgage on your home is the largest financial commitment most people will enter into, and the largest monthly payments for most households! Yet far too few people are prepared to remortgage when their introductory rate comes to an end. When this happens, you are automatically switched to the lenders standard variable rate (SVR). This is usually far more expensive than your current deal and other offers available on the market, but there are too many people paying this rate and potentially costing themselves hundreds or thousands of pounds.
Even spending just a few months on a standard variable rate can cost hundreds of pounds more every month then if you had you spoken to your mortgage broker sooner. Of course, most good brokers will contact you before the introductory offer comes to an end, but it is ultimately up to you to make sure a new mortgage is put in place.
It’s not just that it can cost you more to stay on the SVR, as you keep making mortgage payments your loan to value ratio will improve meaning you are eligible for better offers and even cheaper rates, if the new rates you are eligible for are £100 cheaper then your current rate and the SVR is £100 more expensive then your current rate you would save £200 a month by remortgaging before your current rate ends.
Due to amount of time it can take to arrange a mortgage you should ideally be looking at your mortgage options around 3 months before your current agreement expires. As previously mentioned even a short time spent on your lenders SVR can cost you hundreds of pounds that you might have saved by remortgaging earlier.
Remortgaging isn’t only for saving money either, if you need some extra cash to make some home improvements and your current lender will not let you do this. You could remortaging for a larger amount with another lender that is prepared to lend you the extra money. It’s not always the cheapest option so you may need to do some sums to work out if it is the best option for you, but it can allow you to finally put in that new kitchen or bathroom. Your loan to value ratio will play a part here as well and remortgaging can allow you to release some of the equity you have built up in your home should you need access to some extra funds.
Another reason for remortgaging would be if you believe that interest rates are going to rise soon. If this is the case, you can lock in your interest rate for 2- 5 years and not have to worry about whether you can afford larger monthly payments if rates do indeed go up. There is an element of speculation in this so it’s always best to speak to your broker as they are up to date with the latest industry news and procedures.
In short, remortgaging could be the most important financial decision you make this year, we are so quick to shop for the best deals on phone contracts and car finance yet it could save you (or cost you) hundreds of pounds every month if you do the same with your mortgage, especially if you are, or will soon be on the Standard Variable Rate!