Are you considering remortgaging? Many individuals tend to ignore this option until their current lender reminds them. But, were you aware that you can remortgage earlier than expected?
You can secure a new mortgage deal before your current one comes to an end, but there are some things to consider. In some cases, if you remortgage during your fixed period, or sell if you’re tied into a mortgage, there may be penalties that arise, with an Early Repayment Charge in some cases.
It is also possible to secure a new mortgage deal, often with a more preferable interest rate, months in advance of your current deal coming to an end.
Why would you want to remortgage early?
There are a number of reasons why you might want to look at remortgaging early.
It is possible to remortgage at any time, but it’s only worth exploring if it’s going to benefit you in the long term. This could be when:
- Your fixed rate period has come to an end
- Interest rates are lower than what you are currently paying
- You have built up more equity in your home
Before the days of comparison sites, and where switching service providers are now the norm, people often stayed with the same lender for the whole of their mortgage. This is no longer the case. You can swap mortgages just as you can change from one energy provider to another.
Interest rates are lower than you currently pay
The main reason the majority of people leave their fixed-rate deal early and leave their existing mortgage is because of interest rates.
If you are aware that rates from mortgage lenders are lower than what you currently have, you might be confident that you could secure a cheaper interest rate from a new mortgage lender and save money on your monthly repayments.
There has been a lot of talk in the media lately linked to rising rates in the mortgage market, so it’s more important than ever to shop around and speak to a mortgage broker so you can find the best remortgage deal for you.
Personal reasons
Life happens, and often changes in personal circumstances mean that huge commitments, such as a joint mortgage, need to change too.
You might need to think about changing your mortgage contract if you have to sell your house earlier than you expected. You may have to relocate for work purposes, for example, to move closer to family members, or you are separating from your partner.
If your finances are not in the best place, you might want to remortgage to consolidate debt or try to reduce your mortgage repayments by getting a new mortgage deal.
Another common reason people decide to remortgage early is when a family grows in size. In this case, you might want to raise additional funds for home improvements as a consequence. For this reason, you might want to remortgage to release equity in your home.
You’ve built up equity in your property
Mortgage deals are often linked to how much equity you have in your home. This is referred to as the ‘loan to value ratio’. In a lot of cases, the lower the loan amount to the value of your house, the better your interest rate offer will be.
If you have been making your monthly payments and decreasing your mortgage debt for a number of years, you will have built up more equity in your home. This means when it comes to remortgaging, the loan you need will often be lower.
If this is relevant in your case, it may be that there will be better rates available to you for a new deal as you might fall into a lower loan-to-value bracket than before.
Can you remortgage early on your fixed-rate mortgage?
It is possible to remortgage early on your fixed-rate mortgage, and there are two ways that you might do this.
Firstly, it may be possible to secure a new deal (with either a new or existing mortgage provider) during your current mortgage term that will switch over when your initial mortgage product comes to end.
This could be a sensible and organised approach that you can arrange at leisure and one that your mortgage broker may recommend as you may be able to secure a preferential fixed rate term whilst avoiding paying an exit fee.
A good mortgage broker should get in touch a few months before your current deal ends, allowing plenty of time to source the best mortgage deals.
Secondly, it is possible to leave your fixed-rate mortgage early during your current fixed-rate mortgage deal. We would only recommend doing this in a number of instances, as outlined above, as the benefit of swapping has to outweigh the repercussions, such as being forced to pay early repayment charges.
Should I remortgage with my existing or a new lender?
As with other service providers, such as energy for example, you may well end up getting a better deal by swapping to a new mortgage provider.
However, sometimes it might not be possible to switch and staying with your current provider might be the best option for you.
Everyone’s personal situation is different, so talking through all the possibilities with a mortgage advisor will enable you to move to the most suitable product.
Should you remortgage early, what are the implications?
Just because you can remortgage early, it doesn’t mean you should.
As detailed above, there are a number of reasons why leaving your existing deal early might be a good thing to do, however, there are a number of factors to consider. You will likely have to pay fees in order to leave your fixed term and existing lender, such as having to pay an early repayment fee.
It’s also important to look at whether the product you currently have is worth keeping.
When do people usually remortgage?
In most cases, mortgage brokers would recommend looking for a new mortgage product 3-4 months before your current mortgage deal expires. This will give you and your broker ample time to discuss the costs involved, what mortgage rates are available, and if you would like to alter your mortgage term or the amount you’d like to borrow.
Some fixed-rate deals have flexible mortgage features, such as no early repayment fees, which might be attractive if you think you might want to move house within the new term period.
Fees to consider if you remortgage early
If you decide to remortgage during your current deal, it is important to factor in the below fees which you are likely to incur.
Early repayment charge
Early repayment charges are often a percentage of your outstanding mortgage balance and will usually reduce as you get closer to your fixed rate coming to an end.
Exit fees
Exit fees are often an admin fee most lenders charge in order to settle the mortgage account. This varies from lender to lender, but it could be anything up to £250.
Valuation and Legal fees
Valuation fees and legal fees are often covered by most mortgage lenders to encourage you to switch providers. A lot of mainstream and high street lenders offer this, however, if you need to use a specialist lender this may not be the case.
If you are remortgaging a buy-to-let property, more often than not be charged a valuation fee.
Arrangement fees
An arrangement fee is sometimes charged by a new lender to set up your mortgage account, and can also be referred to as a booking fee, completion fee or product fee. Some residential mortgages don’t have these associated with them, however, those that do can be up to £1500.
There are sometimes options to add these fees to your mortgage depending on the lender’s criteria, but a mortgage advisor will be able to explain all the options available to you.
Broker fees
It is also important to factor in your mortgage broker’s fees. Navigating the complexities of sourcing a mortgage early can be stressful and confusing, so utilising a specialist broker can be a huge benefit.
A broker will look often ask for a credit report, and use your credit rating to source the most suitable mortgage deal available to you, walk you through the mortgage process, and help you switch to a new product that is the best deal for you.
Wrapping things up
In short, there are a number of factors to consider when it comes to thinking about remortgaging early. Each individual’s situation is different, and often things aren’t as straightforward as they appear.
Talking through all your options is vital when you want to get the best mortgage deal available to you, and the friendly team at Millennium Mortgages will be happy to help find what remortgage deals are available.
Information contained within this blog was correct at the time of publication ( 19/02/23) and is subject to change.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Mike Plaster is CeMap qualified CAS status Mortgage and Protection Adviser able to assist on both Residential and Buy To Let Mortgages as well as Life Insurance, Critical Illness Cover and Income Protection.