There are several reasons why you might want to remortgage your property. The most common one is simply that your current deal has come to an end, and you want to shop around for a better rate. It can also be done to raise capital against the property. Whatever the reason, there’s a few points to bear in mind.
Remortgaging to find a better deal
Often a lender will offer an attractive deal to draw in a first-time buyer, for a fixed term of two or five years. However, when this ends, the borrower will automatically be transferred onto a standard variable rate (SVR), which is usually less favourable. Therefore, it makes good financial sense to look around for a better offer.
Bear in mind that you may have to pay a fee if you are exiting a deal early, before the fixed term is over. However, if you find a much more favourable rate, it could still be worth paying the fee, as you will recoup your loss. There may also be a fee to set up the new product, so check beforehand.
As interest rates are set to continue rising for the foreseeable future, it is certainly worth putting some effort in now to secure a fixed term contract, and beat the next rise which looks almost inevitable for the next few months ahead.
Remember that if you do not have a large amount left to repay on the mortgage, you may not have time to recover any outlays made during the switch, so it won’t be worth the effort.
Remortgaging to finance a house improvement
Many lenders will agree to let you borrow money against the house, if you can provide evidence that you are going to use it for renovation or improvement works. They may ask to see a quote or a builder’s estimate, for example.
If you want to refinance for other reasons
If you need to borrow money for another purpose, such as paying off a debt or buying a car, it may be possible, depending on the lender. It can be tempting, because the interest rates on mortgages are lower than other types of loan. However, bear in mind that you will be repaying the debt over a longer period of time, so in the end you will pay a lot more.
Shop around
Comparison websites can be useful, but they often provide inconsistent results, so look at several before you make any decisions. Beware of entering a new deal with substantial early repayment charges, if you think it is likely you will move house within a few years
If you have low equity, for example, if you put down a small deposit of less than 10%, or you are in the unfortunate position of owning a house that is worth less than you paid for it, then you will probably have more limited options.
In the end, it’s usually worth seeking the advice of a qualified professional before you make any final move, because they will have expertise on a range of products, and will be able to accurately advise you on the benefits and pitfalls of each one.
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