Is Remortgaging a Good Idea?
Remortgaging can be a good idea if moving your mortgage to a new lender gives you a better overall outcome, but switching is not automatically worthwhile just because another lender offers a lower interest rate.
You need to consider the new mortgage rate alongside product fees, legal and valuation costs, any early repayment charge on your existing mortgage, the remaining term and what you want the mortgage to do.
In some situations, staying with your existing lender through a product transfer can be more appropriate than completing a full remortgage.
The right option therefore depends on your existing mortgage, your current circumstances and your plans for the property.
Could Remortgaging Be the Right Option for You?
Whether it makes sense to remortgage depends on more than finding a lower interest rate. Your current deal, early repayment charges, loan-to-value, fees and future plans all need to be considered.
At Kerr & Watson, we compare remortgage options across the market with the products available from your existing lender to help identify the most appropriate route.
Is Remortgaging a Good Idea? At a Glance
| Situation | Could remortgaging be worth considering? |
|---|---|
| Your current fixed or introductory deal is ending | Often worth reviewing |
| Another lender offers a lower rate | Potentially, but compare the total cost |
| Your property has increased in value | Potentially, particularly if your LTV has improved |
| You want to borrow more | Potentially, subject to affordability and purpose |
| You are paying an early repayment charge | Possibly, but the cost needs to be calculated |
| You already have a particularly competitive rate | Staying with the existing mortgage may be better |
| You want to stay with your current lender | A product transfer may be more appropriate |
| Your income or credit position has worsened | Switching lender may be more difficult |
| You intend to move home soon | Consider whether taking a new deal with ERCs is appropriate |
The important question is not simply whether another mortgage has a lower rate. It is whether changing mortgage gives you a better overall outcome once all the costs and your future plans are taken into account.
What Does Remortgaging Mean?
A remortgage normally means replacing your existing mortgage with a new mortgage from a different lender while remaining in the same property.
Your new lender repays the mortgage with your existing lender and you then continue making payments under the new mortgage.
If you stay with your existing lender and simply move onto another mortgage product, this is generally known as a product transfer rather than a remortgage.
Both options can be worth considering when your mortgage deal is approaching its end.
When Could Remortgaging Be a Good Idea?
There are several situations where changing lender may be worth considering.
Your Existing Mortgage Deal Is Ending
When a fixed, tracker or discounted mortgage deal ends, you may move onto your lender’s Standard Variable Rate unless another arrangement has been made.
Reviewing your mortgage before this happens gives you time to compare a remortgage with the product-transfer options available from your existing lender.
The most suitable option is not necessarily whichever has the lowest headline interest rate. Fees and other features of the mortgage need to be considered as well.
You Could Reduce the Overall Cost of Your Mortgage
A lower mortgage rate can reduce your monthly payment, but rate alone does not tell you whether switching lender will save money.
For example, a lower-rate mortgage with a substantial product fee could cost more over the initial deal period than a slightly higher-rate mortgage with no product fee.
This is why we compare the overall cost of suitable mortgage products rather than focusing entirely on the interest rate.
Your Loan-to-Value Has Improved
Your loan-to-value, or LTV, compares your outstanding mortgage with the value of your property.
If you have repaid some of your mortgage or your property has increased in value, your LTV may have fallen since you arranged your existing deal.
Moving into a lower LTV band can sometimes give you access to a wider range of mortgage products.
However, the lender will use its own valuation of the property, which may differ from an estate agent’s estimate or an online valuation.
You Want to Borrow More
A remortgage can sometimes be used to increase your borrowing.
People may raise additional funds for purposes such as home improvements, purchasing another property or other significant expenditure.
The lender will assess the purpose of the additional borrowing alongside your income, commitments, credit history, property value and overall affordability.
Borrowing more will increase the amount secured against your home and may increase the total interest you pay.
You Want Different Mortgage Features
Your existing mortgage may no longer suit your circumstances.
For example, you might want a different fixed-rate period, greater overpayment flexibility, a different mortgage term or another feature that is not available through your existing lender.
A remortgage allows you to compare these options across other lenders.
When Might Remortgaging Not Be a Good Idea?
Remortgaging is not always the most appropriate solution.
You Would Pay a Large Early Repayment Charge
If you are still within your existing mortgage deal, your lender may charge an early repayment charge if you repay it before the agreed date.
An ERC can sometimes outweigh the benefit of moving onto a lower mortgage rate.
This does not mean remortgaging early is never worthwhile, but the saving needs to be compared against the cost of leaving the existing mortgage.
Fees Wipe Out the Saving
A remortgage may involve costs such as:
- a mortgage product fee;
- legal costs;
- valuation fees;
- mortgage exit fees; and
- early repayment charges.
Some lenders offer free valuations, legal services or cashback on certain remortgage products, but this varies.
The total cost of the new mortgage should therefore be compared with both your existing mortgage and any product transfer available from your current lender.
Your Existing Mortgage Is Already Competitive
You do not have to remortgage simply because another mortgage product is available.
If your existing mortgage has a particularly competitive rate and you are not approaching the end of the deal, remaining where you are may be more cost-effective.
This is especially relevant if changing lender would mean paying an ERC or losing useful features of your current mortgage.
Your Circumstances Have Changed
A new lender will normally carry out a fresh affordability assessment and credit check.
If your income has fallen, your employment has changed, your commitments have increased or your credit history has deteriorated since your existing mortgage was arranged, the number of lenders available to you may have reduced.
In that situation, it can be particularly important to compare a full remortgage with the options available from your existing lender.
You Are Planning to Move Soon
Taking a new mortgage deal shortly before selling your property can result in an early repayment charge if the mortgage needs to be repaid during the new deal period.
Some mortgages can be ported to another property, but porting remains subject to lender criteria and does not guarantee that you will be able to take the mortgage with you.
Your moving plans should therefore form part of the decision when choosing the length and type of a new mortgage deal.
Find out Your Options
How Do You Work Out Whether Remortgaging Is Worth It?
The best way to assess a remortgage is to compare the overall position rather than one individual figure.
We would normally consider your current mortgage balance, existing interest rate, deal end date, any early repayment charge, the value of your property and your current loan-to-value.
We would then compare the available mortgage products, taking account of the interest rate, product fee, incentives, monthly payments and other relevant costs.
Your future plans matter as well.
For example, the cheapest mortgage over the next two years may not be the most appropriate if you are likely to move home, repay a significant amount of the mortgage or need additional borrowing.
Is a Product Transfer Better Than Remortgaging?
Sometimes.
A product transfer means selecting a new mortgage deal with your existing lender rather than moving the mortgage elsewhere.
It can often involve less paperwork and may not require a new affordability assessment, valuation or conveyancing in the same way as a full remortgage, although the exact process depends on the lender and what you want to change.
Remaining with your current lender can therefore be useful where:
your current lender has competitive products, your circumstances make a new mortgage application more difficult, you need to switch quickly, or the costs of moving lender outweigh the potential saving.
However, only looking at your existing lender means you may miss a more suitable mortgage elsewhere.
We therefore compare the product-transfer options available from your current lender with suitable remortgage products across the wider market.
Is Remortgaging to Consolidate Debt a Good Idea?
Remortgaging can sometimes be used to repay unsecured debts, but this requires careful consideration.
Moving credit cards, loans or other unsecured borrowing onto your mortgage may reduce the monthly payment because the debt is being repaid over a longer period.
However, this can mean paying more interest overall.
It also changes unsecured borrowing into debt secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
Debt consolidation through a mortgage is therefore not appropriate for everyone and the costs, risks and alternatives should be considered before proceeding.
How Early Should You Review Your Remortgage?
It is normally sensible to start reviewing your mortgage several months before your existing deal ends.
This gives you time to consider both the wider remortgage market and the product-transfer options available from your existing lender.
The exact point at which a new mortgage or product transfer can be secured varies between lenders.
Starting early also gives you more time to deal with issues such as property valuations, income evidence, affordability or changes to your circumstances before your existing mortgage deal expires.
Remortgage Case Studies
We have helped customers remortgage for a range of reasons, including raising funds for home improvements and buying out a former partner following a relationship change.
The case studies below show real examples of customers we have helped and demonstrate how factors such as the purpose of the remortgage, property, affordability, loan amount and lender criteria can affect the options available.
How Kerr & Watson Reviews Your Remortgage Options
When we review a remortgage, we do not simply search for the lowest advertised interest rate.
We consider your existing mortgage, any early repayment charge, your current lender’s product-transfer options, property value and loan-to-value, income, commitments, credit history, borrowing requirements and future plans.
We can then compare suitable options across the market and explain whether switching lender, staying with your current lender or taking another approach appears most appropriate for your circumstances.
So, Is Remortgaging a Good Idea?
It can be, but only where the benefits justify the costs and the new mortgage suits your wider plans.
If your existing deal is ending, your LTV has improved or you need to change the amount or structure of your borrowing, reviewing the remortgage market can be worthwhile.
However, an early repayment charge, product fees, a competitive existing mortgage or plans to move home can all make staying with your existing arrangement or completing a product transfer more appropriate.
The important step is to compare the options before making the change.
Could Remortgaging Be Right for You?
If your current mortgage deal is ending, you want to borrow more or you are simply unsure whether switching lender would be worthwhile, we can review your existing mortgage and circumstances.
Kerr & Watson can compare suitable remortgage products across the market with the options available from your current lender and explain the costs and differences clearly. Contact us today.
