Should I re-mortgage?

Are you considering a re-mortgage and wondering if it’s a good idea? It’s a common question we get asked, so let’s explore that in more detail…

Firstly, what is a re-mortgage?

Actually, it can mean two things – looking at if there are better interest rates available when an existing mortgage product comes to an end. Usually clients are looking for a fixed rate product for a period of two to five years.

The other option is when you wish to raise additional capital, commonly for doing big ticket home improvements, although it is by no means exclusively for that purpose.

Let’s start with considering what to do at the end of an existing mortgage period. 

You are likely to want to keep your mortgage payments as low as possible, so why not just use a mortgage comparison site, and go with the lowest interest rate offered for the longest period of time? Yes, you can certainly choose that as an option, but actually it’s not as straightforward as that.

Typically, there are additional costs to consider when weighing up the most competitive rates:

  • Valuation fees – another lender may want an up to date valuation of your property
  • Legal/conveyancing fees – you may incur fees with a solicitor to transfer to another lender
  • Arrangement fees – some lenders cover some of the above costs, but charge an arrangement fee

When reviewing the options these costs need to be considered too. Sometimes they can outweigh any perceived reduction in payments – meaning you actually end up spending more money, rather than less.

Equally, whilst your fixed rate may have come to an end, sometimes lenders tie you in for a further period of time after the fixed rate term with a penalty charge if you choose to switch lenders.

When we handle this for our clients, we look at the whole mortgage market and choose the top three providers and review the running cost comparison. We recommend the lender we feel will offer the best value for you, and then support you through the process of getting an offer in principle, before proceeding with the actual transaction.

So, that’s reviewing interest rates and payments at the end of a fixed rate, but what about when you want to raise additional capital?

Ultimately, this is about considering your overall planning strategy and what you have on your plan for the future. 

That said, raising money via your mortgage is one of the cheapest ways to borrow money

And certainly when compared to something like a personal loan.

Typically interest rates are much lower on mortgages, and many mortgage products offer very good flexibility. For example, you can overpay your mortgage, but then take a mortgage holiday at a future point. Or you can have money in a savings account linked to your mortgage, again enabling you to access funds if you need them.

Whilst re-mortgaging is very common for making home improvements such as an extension, loft conversion or new kitchen, you can also use it to buy a car or consolidate/clear debt. Lenders are becoming a lot more stringent on the reasons for a re-mortgage and are unlikely to lend money for business purposes.

If you are going to use the re-mortgage funds to clear debt, again be sure that you have done your sums. For example, a credit card with a 0% transfer value for a period of time may be an attractive alternative, if the debt is more manageable.

Of course, any re-mortgage is secured against your home, so you are in danger of losing your house if you default on your mortgage. Some people feel very uncomfortable with any kind of debt, so this is right outside their comfort zone.

However, as you will know from previous articles, we passionately believe in you living your best life right now – not just waiting for some point in the future. Don’t put all of your eggs in your retirement basket. Raise the money you need to give you the lifestyle you want.

So, if you’d like to talk about re-mortgaging your house, for any reason, we’d love to help. Give us a call on 01344 875 310.

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