Why now may be a good time to remortgage

Typical English row of terraced cottages
The pandemic has forced many of us to take a good look at our finances. Some have lost their jobs or otherwise seen a dramatic reduction in income, while others have been furloughed. Many of us have spent less money than we normally would because we have not been commuting and haven’t been able to go out as much.

But how many of us have looked at our mortgage to ensure we aren’t paying more than we need to? For most people, the mortgage is their biggest outgoing so it’s worth checking that you aren’t spending more than necessary.

Look at your existing deal

If you are on a fixed rate or base-rate tracker, then you are probably already on a competitive deal. With interest rates at a historic low of 0.1 per cent in an attempt to mitigate the economic damage sparked by the pandemic, mortgage rates are also very competitively priced.

However, check the end date – if the fix is due to end within the next six months, for example, then it is not too early to start looking for your next product. If you have longer than six months to go, note the end date and start your planning six months before then.

If you are on your lender’s standard variable rate (SVR), you will almost certainly be paying more than you need to. It is worth checking to see what other options are available.

Loyalty doesn’t always pay

Many borrowers assume their existing lender will offer the best remortgage deal as a thank you for loyalty. However, this can’t be assumed and you may well find a better deal if you shop around, comparing what your lender is offering with what else is on the market. Don’t forget to consider fees for switching as well as the rate.

This is where a whole-of-market broker such as AWS comes in handy, as they will do the legwork and comparisons for you. Given that some borrowers, such as the self-employed, may find it harder to remortgage because of the pandemic, a broker will know the best lenders to approach for your particular circumstances.

Remortgaging is much easier than it used to be, with far less hassle and paperwork so it is not something you need to dread. Essentially, staying with your existing lender can be more straightforward than remortgaging to another. Another lender will treat your application as a new one, so will run all the affordability checks and criteria. If you stay with your existing lender, it is a product transfer rather than a remortgage; you choose one of the rates available and move onto it. However, this may cost you more than if you moved to another lender.

Should I borrow more?

Many people take the opportunity to extend their borrowing when remortgaging, particularly if they are planning on home improvements. This can be a cost-effective way of paying for such work as mortgage rates tend to be far cheaper than personal loans, credit cards or overdrafts. However, much will depend on your income and how much equity you have in your home – the lender will want to see evidence that you can afford the extra borrowing, and if you already have a high loan-to-value, the extra loan may push you into a higher bracket, resulting in the whole mortgage costing you more.

Overpaying

If you do manage to save by remortgaging, you may want to use those ‘savings’ to overpay on your mortgage. As you won’t be used to the saving, you won’t miss it, and will clear your mortgage more quickly, paying less interest in the long run. Most lenders will let you overpay by up to 10 per cent of the mortgage amount per annum without penalty, so check before you start overpaying as you don’t want to incur a penalty.

Seek advice

As with any mortgage decision, it is worth seeking advice from a whole-of-market broker, such as AWS, if you are thinking about remortgaging. Get in touch for more information.
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