Remortgaging: what you need to know

Remortgaging your home is a fairly simple thing to do but many people forget to check their current deal.

Last year, a study showed that mortgage borrowers were unnecessarily paying £15.4bn in interest annually by remaining with their lenders’ Standard Variable Rate (SVR).

The data from the Financial Conduct Authority revealed that 2 million borrowers had fallen into the SVR trap for six months or more.

It estimated that if the average mortgage loan is about £173,000 and the average rate of interest is 4.39%, borrowers who dropped to SVR pay around £7,500 in interest each year.

But if they switch to a more competitive product (such as a 75% two-year fixed rate deal) they could save in excess of £4,500 of annual interest, the report claims.

What is staggering is the study shows if a borrower remains on the SVR for the full term of a 25-year mortgage, they pay more than £112,000 of total interest!

That is around 65% of the original mortgage amount.

The low interest rate often means that borrowers are a little bit apathetic when it comes to their mortgage.

They often assume that their current deal is fine, not realising that in some cases, being on a Standard Variable Rate means they may be paying more than they need to.

At The Mortgage Dog, we always know when our clients’ fixed rate deals are coming to an end and we will inform you.

We will then look at your current deal and see if there is something better for you.

As the Money Advice Service shows, remortgaging doesn’t always mean you get a better deal. If there are fees that are more than the saving you make, for example, we will advise you.

So what is remortgaging?

A remortgage is when you take out a new mortgage on a property you already own. That could be to replace your existing mortgage or to borrow money against your home.
Around one-third of home loans in the UK are remortgages. As we’ve already seen, many people remortgage to replace an existing one because you pay less interest over a certain time.

When should I consider remortgaging?

• The time to remortgage is when
• Your current deal is about to end
• You want a better rate
• Your home’s value has gone up
• You want to overpay and your lender won’t allow you
• You want to switch from interest-only to a repayment mortgage
• You want to borrow more
• You want a more flexible mortgage

When shouldn’t I remortgage?

For example, you shouldn’t remortgage if:

• Your early repayment charge is large
• Your mortgage debt is small, especially less than £50,000. It may not be worth switching lender simply because you are less likely to make a saving if the fees are high. In fact, some lenders won’t take on mortgages below £25,000
• Your home’s value has dropped
• You have little equity
• You’re already on a good rate. You may be already on such a fantastic deal that it’s difficult to beat. Of course, you may need to review it again in the future
• You have had credit problems since taking out your last mortgage

What should I do?

The best advice is to take advice if you’re ever unsure. A mortgage broker such as The Mortgage Dog has access to the ‘whole of the market’ and it is possible we may be able to find a better deal.

But if there is any reason why a remortgage isn’t best for you, we will tell you.

Why not contact us now and ask us for advice. We look at each mortgage individually taking your current situation into account, so may need to arrange to meet you face to face.

Your home may be repossessed if you do not keep up repayments on your mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage