Should I remortgage?
There is one main reason why you should remortgage and that's to save money on your monthly payments.
It's always worth looking at the remortgage deals around but there are a couple of occasions when you should not remortgage:
- when you would pay a penalty, or early repayment charge, for leaving your existing lender (see our calculator Early Repayment Charges)
- if interest rates have gone up and you'd have to pay more (see our calculator what will happen if rates change?).
Why do people remortgage?
There can be various reasons for remortgaging. We look at some of them in detail below but mostly you remortgage because you're looking for a better deal on your existing loan. Usually that means a cheaper interest rate but it could be that a different mortgage package suits you better - perhaps you want to fix the interest rate you pay.
It used to be that people took out a 25 year mortgage and stuck with the same loan for 25 years until it was paid off. These days people switch from one lender to another when they can get a better deal.
If you have enough equity in your home - that is, the mortgage is quite small compared to the property's value - you can remortgage for more and take out some of the equity in cash. You can use this cash for any (legal!) purpose.
Lenders are very competitive and there are hundreds of offers to choose from so it's worth checking out the market regularly to make sure you're not paying more for your mortgage than you need. This simple action could save you thousands of pounds in interest over the life of your mortgage.
Is it worth remortgaging to purchase a Buy to Let?
This is a legitimate way to get into the Buy to Let market and can be a good plan for people who have a lot of equity in their home - meaning their existing mortgage is a small percentage of the value of the property.
By remortgaging you can release some of this equity and use the money as a deposit on a Buy to Let property. This will be cheaper than taking out a specific Buy to Let mortgage because interest rates are higher for Buy to Let loans.
Your remortgage is going to be larger than the existing one so you'll have to show the lender that you can still afford the higher repayments. But you may be able to include the rent you expect to receive as part of your income when calculating whether you can afford a bigger mortgage.
There will be times when the property is empty and you don't have any rent coming in so you must have a contingency fund to meet your mortgage payments when this happens. There could also be occasions when the tenants stay but stop paying rent. You still have to pay your mortgage every month and, if you defaulted, you could lose the property altogether.
Read our guide "Is Buy to Let a good investment?" to help you decide if this is for you.
Can I remortgage to buy another house?
Remortgaging one property to buy another can be a good move provided you've enough equity in your home. In many ways it's similar to remortgaging for a buy to let property, except you will be living in the new house yourself and won't be receiving rent towards your new higher mortgage payments.
The lender will want to be sure you can afford the higher remortgage payments out of your income alone. If you fail to pay the mortgage, you could lose your main home as well as the second one.
Can I remortgage to pay for home improvements?
When you're remortgaging to release some of the cash that's built up in your property, lenders will ask you why. They want to know if you can afford the new loan, and what you will do with the money you take out.
Big home improvements, such as converting the loft or buying a conservatory, cost thousands of pounds so remortgaging can be a cost effective way of borrowing the money to pay for them.
To borrow comparatively small amounts, though, an unsecured personal loan is better. The interest rate will be higher and the monthly repayments more, but you'll repay the debt faster so pay less interest overall. And your house won't be at risk if you default.
Can I remortgage to pay off debts?
If you're wondering about remortgaging because you're struggling with debts, stop and think carefully first.
Using the money you release from your home to pay off other debts can help because mortgages usually have a lower interest rate than personal loans and credit cards.
You're right to take action to reduce your debts but if you increase your mortgage to pay off other debts and then find you can't afford the mortgage, you could lose your home.
Remortgaging to pay off debts is worthwhile if you feel overwhelmed by your other debts and are confident that you can afford the remortgage payments.
Although the interest rates are lower, you spread mortgage repayments over a far longer period than a personal loan so you could pay out more in the long run.
At the same time, you should cut up your credit cards. If you are in debt because you spent too much money shopping, you must stop spending otherwise you'll get back into debt again but with a larger mortgage to pay as well.
Can I remortgage because I'm getting divorced?
Divorcing is a sad and difficult time, not least because you have to separate your finances. Your home is probably the biggest asset you have to split between you.
Assuming you own it jointly with your partner, you have three choices:
- sell the house, repay the outstanding mortgage and split what's left
- keep the house, take over the mortgage yourself and buy out your partner
- allow your partner to take over the mortgage and buy you out.
If you want to keep the property yourself, you should talk to your lender straightaway to ask if you can transfer the existing joint mortgage to your name alone. Before agreeing, the lender will want to make sure you can afford the repayments on your income alone.
If the lender doesn't agree, you might be able to remortgage the property with a different lender.
You'll become the sole owner of the property which involves legal work to transfer your ex's share to your name.
Anyone in a tricky position who wants to remortgage can speak to our mortgage advisers. It will cost you nothing. Our service is fee free.