When to remortgage

Your mortgage is likely to be your biggest expenditure, and finding a better deal with a lower interest rate is one of the best ways to cut down your monthly outgoings. But what many people ask is 'when is the best time to remortgage?

April 27, 2017

You can remortgage at any time but there's no point doing it just for the sake of switching to a different lender. You want to choose a time when there's a positive advantage in moving mortgages.
This may be when:  

  • interest rates are lower than you're paying at the moment  
  • you have or have built up equity of at least 10% in your home  
  • you've come to the end of a fixed rate mortgage deal  
  • the benefits outweigh the costs

It used to be that people stayed with the same lender for the whole period of the mortgage. This is no longer the case. You can switch mortgages just as you can move from one energy provider to another.

When interest rates are low  

Lenders are continually coming out with new mortgage deals and, particularly if you've had your mortgage for a few years, you'll probably find there are cheaper deals around. This can save a lot of money.
You can lock in to a low interest rate with a fixed rate mortgage and know that your repayments will stay the same for the next few years, whatever happens to other rates.
There's one risk to watch out for: if your existing mortgage is a special deal, you might be tied in and have to pay an early repayment charge for switching before the end of the deal. Check our early repayment charges calculator and work out whether the cost is worth the saving.

When you own enough equity in your house  

Equity is the amount of your home that you have paid for. The rest is mortgaged. The proportions are called the loan to value ratio (LTV). If the price of your house has gone up, your mortgage will be a smaller percentage of the property's value than it was when you started.
The more equity you own and the lower the LTV, the better remortgage deal you can get.
If your mortgage is now 75% of the house price, you now have the equivalent of a 25% deposit in the property when you remortgage and could get better terms.
Or perhaps the mortgage is only 70% of the house's value. Then you could take out 5% in cash and still have put down a 25% equity to get a good deal.

At the end of your fixed term mortgage  

Fixed rate mortgages run for a set term, typically between 2 and 10 years, and then move to the lender's standard variable rate of interest (SVR) which is probably higher. If you have a fixed rate mortgage at the moment, when you get to the end of the period you'll need to remortgage if you don't want to stay on the variable rate.
Whether interest on the new loan is the same as you've been paying, higher or lower, depends on what's happening to rates at the time. You do not have to stay with the same lender and should certainly shop around to see what is on offer.
If you want to remortgage before your fixed rate comes to an end, you'll probably have to pay early repayment charges. Usually this isn't worth paying but you should consider it if interest rates have dropped since you took out your fixed rate mortgage.
Our early repayment charges calculator helps you work out if it's worth remortgaging before your current mortgage comes to an end.

When a new mortgage costs less even after paying the costs  

Switching from one lender to another involves charges. You will nearly always have to pay several different fees which we explain in our guide to remortgaging costs.
These can in include:

  • arrangement fee  
  • valuation fee  
  • legal fees  
  • exit fee

Obviously there is no point in remortgaging if you end up out of pocket. You need to work out if you will save money overall by remortgaging. It's worth checking what's available because there are a few remortgage deals with low costs and occasionally no charge at all. Our advisers can find you the most cost-effective one and best of all our advice is fee free.

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