The pros and cons of remortgaging
When you come to the end of your introductory deal, which usually lasts for between two and five years, you could be tempted to start looking at remortgaging in order to find another deal that will provide you with a lower interest rate rather than just allowing your mortgage to move onto your lender’s standard variable rate. As with all financial transactions it will depend on your specific circumstances as to whether it is more cost effective to remortgage or more cost effective to just stick with your variable rate.
The pros of remortgaging
There are a number of very good reasons for remortgaging that can put you in a much stronger financial position. As long as you have reached the end of your introductory deal and are no longer subject to the high charges for early repayment, you could potentially reduce your monthly payments and save money in the long run. If you have a relatively large amount of loan that is still to be paid off it is generally going to save you money in the long run by remortgaging as you will be saving larger amounts in interest repayments than if you have a smaller mortgage that may be repaid within the next few years anyway. Remortgaging can also give you the opportunity to pay off a substantial portion of your mortgage without incurring any repayment fees as many mortgages will only let you pay off up to 10% of the total loan in any calendar year. If you can decrease your loan to value ratio you can potentially gain access to a whole additional range of mortgage products that you perhaps did not have access to when you took out your original mortgage.
While it is always a good idea to consult with an independent mortgage broker in order to find out about all of the products that are available to you, it is also worth approaching your current lender to find out whether there are any loyalty mortgages available. These types of mortgage are only available to existing customers and they do not show up on mortgage broker’s, or financial adviser’s searches, however they may still be aware of them and be able to advise you to look into them. The benefit of loyalty mortgages is that you can bypass much of the application process because you are already known to your lender and they will already have a lot of the details that they require from you. You will also find that many also offer you reduced application fees and interest rates that are not available to a new customer.
Get the best deal – Compare you loyalty mortgage deal against the whole UK mortgage market.
The cons of remortgaging
While there are plenty of cases where remortgaging will save you money, there are also other situations when remortgaging will actually cost you more in the long run. If you have a relatively small amount of mortgage left you are likely to find that the amount you will save on the lower interest payments will actually be less than it costs to move your mortgage. If you are considering using an uplift in your mortgage in order to consolidate debts, you should think very carefully about this as if you are on a 20 to 25 year repayment term you will find that you will actually end up paying significantly more in interest payments than if you keep your debts separate. Rather than consolidating debts, such as credit cards, into your mortgage you would be better off looking at alternative debt consolidation methods that are not as long term.
One potential con of remortgaging is that if you took out your existing mortgage under the old guidelines, you may find that the mortgage you wish to take out to replace it is actually deemed as unaffordable for you, particularly with the new ‘stress test’, which looks at the affordability of repayments should the interest rate rise significantly. If your new lender is not satisfied that you are able to meet the repayments they will not allow you to proceed with the mortgage application.
In all cases you can get the most up to date advice on remortgaging from an independent financial adviser or mortgage broker.
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