Remortgaging Explained: Is Now the Right Time?
People choose to remortgage when their current deal expires to save thousands of pounds yearly. Your lender's standard variable rates (SVRs) usually range between 6.5% and 7.5% - sometimes reaching as high as 7.60%. Staying on these default rates after your fixed term ends will cost you more than needed.
The right time to remortgage depends on your current situation. To name just one example, see how much you could save by comparing today’s average fixed rates with your current payments. Homeowners typically save about £231 monthly by switching from a higher rate to a lower one. The timing of your switch matters a lot – early repayment charges of 2-5% of your outstanding loan might eat up your savings if you’re still in your existing deal. This piece will help you decide if remortgaging makes financial sense for your situation.
What is remortgaging and how does it work?
Remortgaging means switching your mortgage to a new lender while staying in your current home. This is different from getting a new home loan – you’re simply replacing your existing mortgage with another one that might have better terms or rates. Many homeowners look at this option during their mortgage life.
Definition and simple concept
The core idea of remortgaging is straightforward. You take out a new mortgage with a different lender to pay off your existing one, using your home as security. The whole process ends with your old mortgage paid off and a new one in place – all without moving house. On top of that, it lets you change your mortgage type, adjust how long you’ll pay it back, or modify your borrowing amount.
Most people don’t stick with their original mortgage deal forever. Just like switching energy companies to cut costs, you can switch mortgage lenders to get better deals that have come up since your first loan. This gives you a great chance to look at your finances again and find a mortgage that fits your needs better.
How it’s different from a product transfer
People often mix up remortgaging with a product transfer, but they’re two separate things:
- Remortgaging means you switch to a completely new lender
- Product transfer (some call it “switching to a new deal”) keeps you with your current lender but moves you to a different mortgage product they offer
The main difference comes down to who provides your new mortgage. Product transfers have really taken off lately – in 2024, out of 1.6 million homeowners who needed a new mortgage deal, 83% stayed with their existing lender instead of remortgaging.
Product transfers need less paperwork and move faster since you’re keeping the same lender. They usually don’t need new affordability checks if you’re borrowing the same amount. This helps a lot if your money situation has changed since you got your first mortgage.
The right time to consider it
Learning why people remortgage helps you see if it’s right for you. You can remortgage anytime, but some situations make more sense than others.
People usually think about remortgaging as their current deal nears its end. The experts say you should start looking about six months before your deal runs out. This gives you plenty of time to shop around without feeling rushed. It also helps you avoid ending up on your lender’s standard variable rate, which costs more.
People also remortgage to lock in better interest rates, borrow extra money to improve their homes, take out some equity, or switch between variable and fixed rates based on market conditions. Any big change in your finances or mortgage needs might make you think about remortgaging.
Remember that remortgaging before your current deal ends might mean paying early repayment charges. Sometimes, even with these fees, switching early could save you money down the road – but waiting until your deal ends usually costs less.
Top reasons to remortgage your house
Learning why people remortgage will help you decide if this move makes sense for your finances. People have good reasons to remortgage their homes, and each could bring real benefits based on your situation.
Your current deal is ending soon
Most homeowners look at remortgaging as their existing mortgage deal nears its end. Your lender will move you to their Standard Variable Rate (SVR) once your introductory period ends. These rates usually sit between 6.5% and 7.5%. The new rates are almost always higher than your fixed deal, so your monthly payments will go up.
You should start looking at remortgage options two to six months before your current deal ends. This gives you enough time to compare deals and lock in new rates before the higher payments kick in. Many lenders let you secure a new mortgage deal up to six months ahead, which means you can stay with your current deal until it ends.
You want to lock in a better rate
Getting a better interest rate remains the main reason people remortgage. Finding a rate that cuts your monthly payments makes it worth looking into a long-term money-saving remortgage.
Your current mortgage might still have time left, but savings from a better rate could outweigh early repayment charges, especially with a large mortgage. These charges usually run between 2-5% of what you still owe. You’ll need to check if your monthly savings make up for these upfront costs before you decide.
Your home value has increased
A higher property value can boost your remortgaging options by giving you a better loan-to-value (LTV) ratio. UK property prices rose 31% between 2017 and 2024, putting many homeowners in a stronger position.
Here’s a real example: You bought a home for £250,000 with an 80% LTV mortgage (£200,000) and paid it down to £180,000 – your LTV would be 72%. But if your property now costs £300,000, your LTV drops to 60%. This better ratio often means access to lower interest rates and more mortgage options.
You want to borrow more or overpay
Remortgaging lets you adjust your loan amount – you can either borrow extra money or make bigger overpayments than your current deal allows.
Extra money for home improvements, debt consolidation, or major expenses makes remortgaging to release equity a good choice. July 2024 saw 49% of homeowners who remortgaged take extra money, borrowing £16,389 on average.
You might want to pay off your mortgage faster than your current terms allow. Most lenders limit overpayments to about 10% of your balance each year. Remortgaging lets you cut your loan size by any amount without early repayment charges.
You want to switch repayment type or get more flexibility
Your financial priorities might shift over time, and you might need different mortgage features. You might have an interest-only mortgage but want to switch to a repayment mortgage to start clearing your balance.
Some homeowners like a “part & part” setup, splitting their mortgage between repayment and interest-only terms. This keeps monthly payments lower than a full switch while still reducing your balance.
On top of that, remortgaging can give you helpful features like payment holidays, overpayment options, or flexibility for variable income periods. These features are great if your finances change or you expect shifts in your income.
When remortgaging might not be the right move
Remortgaging can save you money in many cases. However, some situations might cost you more than you save. Knowing when to avoid remortgaging matters just as much as understanding why people choose to do it.
You have a small remaining mortgage
Your mortgage balance might drop below certain levels where remortgaging no longer makes financial sense. Most lenders won’t look at mortgages under £25,000, while others set £50,000 as their minimum. A small mortgage means any remortgaging fees become too large compared to potential interest savings. You might save more by staying with your current lender, even with a slightly higher rate.
Your early repayment charge is too high
Early repayment charges (ERCs) can make a big difference to your remortgaging costs. These charges usually range from 1% to 5% of your remaining mortgage balance. Let’s look at a £200,000 mortgage with a 5% ERC – you’d pay £10,000 to end your deal early. The monthly savings from a new deal need to outweigh these upfront costs. Do the math to see if the savings justify these expenses.
Your financial situation has changed
Banks might not approve your application if your income has dropped or your employment status has changed – like becoming self-employed or working fewer hours. Lenders must check your spending habits by law. They’ll either turn down your application or give you worse rates than what you currently have if they think you can’t afford the payments.
Your home value has dropped, or you have low equity
A lower property value could push you into a higher loan-to-value (LTV) band, which means less attractive interest rates. The worst case puts you in negative equity – owing more than your home’s worth. This makes remortgaging tough because lenders base their decisions on current property values, which could leave you short. Very few lenders offer ‘negative equity mortgages,’ and these come with higher rates.
You’ve had credit issues recently
Credit problems can limit your choices for remortgaging. Your chances of getting a new deal depend on how serious and recent these issues are. Missing mortgage payments in the last year or being behind now makes remortgaging hard. Defaults and CCJs stay on your credit report for six years and affect your borrowing options. All the same, their impact reduces over time – lenders might overlook minor credit issues like CCJs after 12-24 months.
Mortgageable offers a free Equifax Credit Report as part of its service, with no obligation to proceed. Something worth considering.
How to decide: Should I remortgage now?
The choice to remortgage needs a careful look at several vital factors. A proper review helps you decide the best time to get a new mortgage deal.
Check your current mortgage deal
Start by getting into when your existing mortgage deal ends. Your planning should begin about six months before the end date. This timing lets you explore other options before you move to your lender’s costlier Standard Variable Rate (SVR). The SVR usually ranges from 6.5% to 7.5%. You should check if any early repayment charges apply during your current deal period. These charges can reach 2-5% of your outstanding loan.
Compare new rates and calculate savings
Once you know your position, look at what’s available. Mortgage comparison tools and calculators show your potential monthly savings. Think over all related costs. These include application fees (also known as arrangement or product fees), valuation fees, and solicitor’s fees. The interest rate isn’t everything—the total cost includes all fees. Most lenders let you secure a new rate up to six months ahead.
Understand your loan-to-value ratio
Your loan-to-value (LTV) ratio substantially affects available mortgage deals. Find your LTV by dividing your remaining mortgage balance by your property’s current value and multiplying by 100. To cite an instance, see a £180,000 loan on a £300,000 property—that’s a 60% LTV. Lower LTV ratios often lead to better interest rates. An estate agent or surveyor can give you your property’s accurate current value.
Consider your long-term plans
Your remortgage should match your future goals. Think about how long you’ll stay in your property and whether you need flexibility to make overpayments or move. A longer mortgage term means lower monthly payments but more interest over time. Older borrowers should check if their new mortgage term goes beyond retirement age. Lenders usually set maximum age limits between 70-80 years.
Related guides:
Fixed vs variable: Choosing the right type of mortgage
Picking between fixed and variable rate mortgages plays a key role when you think about why do people remortgage. Both choices have clear benefits based on your money situation and market views.
Benefits of fixed-rate deals
Fixed-rate mortgages keep the same interest rate for a set time—usually 2-5 years. Your monthly payments stay the same, whatever happens in the market. This stability helps you plan your budget better and gives you peace of mind as economic conditions change. People with steady salaries and monthly bills often find fixed rates more appealing.
When variable rates might be better
Variable mortgages usually start with lower rates than fixed ones. Your payments will drop if interest rates go down. These mortgages let you make extra payments more easily and have smaller charges if you pay early, which gives you more freedom. Tracker mortgages follow the Bank of England’s base rate and change automatically with the economy.
How interest rate trends affect your choice
Studies show homeowners often pick mortgage products based on what they think rates will do in the future. Most people choose fixed rates if they expect increases and variable ones if they think rates will fall. The difference between long-term and short-term interest rates also matters—bigger gaps make adjustable rates look better. People with better education or financial knowledge tend to predict rate changes more accurately.
Conclusion
Remortgaging is a substantial financial decision that depends on your circumstances. This piece explores why thousands of homeowners switch their mortgages each year and what makes it work.
Your current deal’s end date often triggers the need to remortgage. The lender’s standard variable rate could cost you nowhere near what you should pay, and many homeowners save hundreds of pounds each month. All the same, take your time with this decision. Early repayment charges, your loan-to-value ratio, and changes in your financial situation are vital factors that determine if remortgaging makes sense for you.
Your property’s value plays a big role in this equation. A rise in your home’s value since your last mortgage might qualify you for better rates with an improved LTV ratio. A drop in property value could make remortgaging less attractive right now.
Fixed and variable rates add another layer to this decision. Fixed rates give you stability and predictability. Variable rates offer flexibility and could mean lower costs at the start. Your comfort with risk and view on future interest rates will shape your choice.
The question “Should I remortgage now?” has no single answer. You need to balance potential savings against costs, think about your long-term plans, and review your current finances. Start your research six months before your existing deal ends to avoid rushing your decision.
Remortgaging isn’t always your best option. People with small remaining mortgages, high early repayment charges, or recent credit issues might benefit more by staying put. The goal isn’t just to switch lenders – it’s to find the best mortgage setup for your situation.
Key Takeaways
Understanding when and why to remortgage can save you thousands of pounds annually whilst avoiding costly financial mistakes.
• Start exploring remortgage options 6 months before your current deal expires to avoid expensive standard variable rates of 6.5-7.5%
• Calculate if potential monthly savings justify early repayment charges (2-5% of outstanding loan) before switching deals early
• Improved property values since purchase can lower your loan-to-value ratio, unlocking access to better interest rates and deals
• Avoid remortgaging with small balances under £25,000-£50,000, recent credit issues, or when facing high early exit penalties
• Fixed rates offer payment stability for budgeting, whilst variable rates provide flexibility and potential savings if rates fall
The key is weighing potential savings against all associated costs whilst considering your long-term financial plans and current circumstances.
