Should you remortgage?
Many can slash costs by switching mortgage
Remortgaging is where you take out a new mortgage deal to replace another. The most common reason to remortgage is to save money – possibly because your current deal has finished and you've moved onto your lender's expensive Standard Variable Rate. However, this isn't the only reason to remortgage, as this guide shows.
Need a new mortgage? Switching lender isn't your only option. You can also get a new deal from your current lender – something called a product transfer.
What is remortgaging?
For many people, a mortgage is their biggest financial commitment. So it follows that streamlining the largest debt can produce the largest saving – potentially £100s, in the best-case scenario £1,000s, each year.
If you're the kind of person who shops around to get the cheapest television or mobile phone contract, then you're missing a trick by not using the same skills to save money on your mortgage.
But there are pros and cons to remortgaging.
First, we'll discuss reasons TO remortgage, then we'll discuss reasons NOT TO remortgage.
Watch Martin's 5-min remortgage video
Before we start, it's worth watching Martin's five-minute remortgage briefing, which provides some top tips on how to remortgage well...
Reasons TO remortgage
There are many reasons why you might remortgage, including:
✅ Your current deal is ending
Most mortgage deals last for a defined period of time – often between two and five years. This is the typical length of a fixed-rate mortgage, tracker and discount deal.
When the deal comes to an end, your lender will move you to its Standard Variable Rate (SVR). This is likely to be significantly higher than the interest rate you were on and the best new mortgage deals available – SVRs tend to be around 6.5% to 7.5%. If your deal's ending, you want to be ready to remortgage to a competitive rate.
To avoid landing on your lender's SVR, start looking for a new deal six months before your current one ends. See our Getting ready to remortgage guide for more help.
✅ You want a better rate
If your current mortgage deal hasn't ended – for example, you're two years through a five-year deal – then it's likely you'll need to pay an early repayment charge (ERC) to ditch it. ERCs can be huge – often 2-5% of your outstanding loan.
This shouldn't mean you immediately disregard the idea of remortgaging, as the savings made from getting a better rate can still be huge even if you do pay an ERC (especially if you've got a big mortgage). Our Compare two mortgages calculator helps show the effect.
If you're considering paying an ERC in order to remortgage, do your sums first. Our Ditch your fix calculator shows what kind of new interest rate you'd need to make an ERC worth it.
✅ Your home's value has gone up...a lot
If the value of your home has risen significantly since you took out your current mortgage deal, you may find you're now in a lower loan-to-value band, and therefore eligible for lower interest rates. Again, you need to do your sums, but it's definitely worth a look.
✅ You're worried about interest rates going up
First, you need to check what is meant by rates going up.
If it's the Bank of England base rate, this may affect your mortgage payments, depending on the type of deal you have. For example, variable rate mortgages – such as trackers – tend to be impacted by movements to the base rate.
On the other hand, if you're on a fixed-rate, your mortgage payments won't automatically be affected by changes to the base rate or by deals being offered to new borrowers.
✅ You want to overpay but your lender won't let you
Most lenders cap how much you can overpay your mortgage by (for example, 10% of your outstanding balance annually). Overpay by more than this and you'll face paying an ERC.
Remortgaging means you can reduce your loan size by as much as you want – maybe you've come into some inheritance – and possibly get a cheaper interest rate. But watch out for any ERCs you'd pay, and compare this to how much you'd save with a new rate.
✅ You want to borrow more
Perhaps your lender has said no to lending you extra money or said yes but its rates aren't good. Remortgaging to a new lender might help you raise money on better rates, but first take any ERC into account to see if this really is cheaper than other forms of borrowing.
A new lender will ask you what the extra money is for. The most commonly acceptable reasons to raise extra money are for home improvements and paying off debts. If you're borrowing a large amount, be prepared for the lender to ask for evidence – for example, builder quotes, or proof you've paid off the debts.
I always shiver slightly when people talk about adding non-housing debts to their mortgage, whether it's for a new kitchen, a holiday or to consolidate existing borrowing. There are times when this could be a necessary evil, perhaps to get you out of a hole.
My problem isn't that it is wrong per se, in fact often it's a good move, but the issue is many people see it as a no-brainer solution.
Let me make something plain. Borrowing £1,000 at 5% over 20 years is more than twice as expensive as 10% over 5 years. Put that way, it suddenly doesn't seem so much of a no-brainer now does it?
✅ You want to switch from interest-only to capital repayment
You shouldn't need to remortgage as your lender should be happy to make this change.
Normally you can even change part of the loan to capital repayment and leave the rest on interest-only, which is particularly useful for anyone with an underperforming endowment mortgage which is expected to result in a shortfall at the end of the term.
However, it's a totally different story if you want to change from capital repayment to interest-only – expect your lender to be difficult about this (if they even consider it at all).
✅ You want a more flexible mortgage
Maybe you want to be able to take payment holidays. Or maybe you're looking to combine your savings accounts with your mortgage.
Whatever flexibility you want in a mortgage, chances are it's out there. But know that these types of mortgages often come at a price – expect to pay for flexible features with a slightly higher interest rate. So don't be tempted unless you will actually use them.
Reasons NOT TO remortgage
Remortgaging might not necessarily be the best option for you right now as it can come with disadvantages. Here are some of the reasons why this might be the case:
❌ Your mortgage debt is really small
Once your loan falls below a certain amount – say around £50,000 – it may not be worth remortgaging simply because you are less likely to make a saving if the fees are high.
Have a look, but you'll probably want a rate with a small fee, or no fee at all. The smaller your mortgage, the worse the effect of any fees you need to pay. Quite often, you'll be better off remaining on a higher interest rate.
❌ The early repayment charge is large
A large early repayment charge (ERC) might mean it would be madness to ditch your current deal early. Do your sums to find out – our 'Ditch your fix?' calculator can help here.
If the ERC means ditching early isn't worth it, be ready to switch deal as soon as you can.
Alternatively, ask your lender if you can switch to another of its deals (known as a product transfer) by paying a reduced ERC. You're unlikely to be moved to its top-of-the range deals, but if it's significantly better than what you're currently paying – and doesn't lock you in for much longer – it might be worth it.
❌ Your circumstances have changed
Your financial position might have altered since you took out your current mortgage – for example, you've stopped working or have become self-employed.
Strict mortgage rules mean lenders must see evidence of your income. Therefore, if you no longer fit a lender's lending criteria, you might struggle to remortgage and face staying put.
So if your existing deal is ending, check the best new deal your current lender will give you (a product transfer). It may not necessarily be the wider market's top rate, but it's an easy start point – as there's normally less paperwork involved than a remortgage (provided you're not changing the terms of your mortgage or borrowing more) and typically fewer fees.
Our Mortgage Best Buys tool has a function allowing you to see the product transfer deals available to you. Also see our Remortgage versus product transfer guide.
❌ Your home's value has dropped
You may have had a 10% deposit when you bought your home, meaning you got a 90% mortgage. But house prices have since dropped, so what you owe is a bigger proportion.
In this scenario, you're the victim of evaporating equity – even if you've been making repayments. You might even be in negative equity, where your mortgage debt is higher than the value of the property. The only thing you can do is sit tight, make overpayments (if you can afford to) and wait for prices in your area to go up again, as remortgaging will be tough.
❌ You have very little equity
If you need to borrow more than 90% of the value of your property then you'll often find it difficult to find a better rate, though it's still worth checking.
❌ You've had credit problems since taking out your last mortgage
The financial regulator requires lenders to check a mortgage is affordable – not just at current rates but at a higher rate too – to ensure you could cope if interest rates rose.
Therefore, lenders will want a lot of detail about your outgoings, and are looking for spotless repayment histories or at least a good record of handling debts well. One recently missed payment to your credit card, loan, mortgage, utility company could scupper your chances...
Our Improve your credit score guide has ways of smoothing out creases on your credit file.
❌ You're already on a great rate
You may be already on such a fantastic deal that you'd be mad to move right now.
Yet don't get too comfortable. Once your deal comes to an end, your current lender might not offer the best rates on the market, so you'll need to consider remortgaging then.
Now you know the pros and cons of remortgaging, see our Getting ready to remortgage and Cheap mortgage guides so you can prepare yourself and your finances to give you the chance to find the best deal possible. If you're ready to find a top remortgage rate, head straight to our Mortgage best buys tool.
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