Remortgaging, the process of switching your existing mortgage to a new deal with either the same or a different lender, is a common financial strategy for homeowners in the UK.
There are various reasons why people choose to remortgage their homes, each driven by financial or personal circumstances. In this article, we explore when you may want to think about remortgaging your home.
Securing a better interest rate
One of the most common reasons for remortgaging is to obtain a more favourable interest rate. Mortgage interest rates can fluctuate over time, and the rate at which a homeowner initially secured their mortgage may no longer be competitive.
By remortgaging, homeowners can take advantage of lower interest rates, potentially reducing their monthly payments and overall interest costs.
Releasing equity
Homeowners often remortgage to release equity from their property. Equity is the difference between the market value of a home and the outstanding mortgage balance.
By remortgaging, homeowners can access this built-up equity, which can then be used for various purposes such as home improvements, paying off debts, funding a major purchase, or even investing in other properties.
Debt consolidation
Remortgaging can be an effective way to consolidate higher-interest debts into a single, more manageable mortgage payment. By using the equity in their home, homeowners can pay off credit cards, personal loans, or other debts that carry higher interest rates.
Changing mortgage terms
Homeowners might choose to remortgage to change the terms of their mortgage. This can include switching from an interest-only mortgage to a repayment mortgage or adjusting the length of the mortgage term to suit their current financial situation.
For example, extending the mortgage term can lower monthly payments, while shortening it can lead to faster repayment and reduced interest costs over time.
Improving mortgage flexibility
Some remortgage to gain access to more flexible mortgage features. These can include the ability to make overpayments without penalties, taking payment holidays, or accessing offset accounts that allow savings to be offset against the mortgage balance.
This can provide greater financial flexibility and help homeowners manage their finances more effectively.
Avoiding Standard Variable Rate (SVR)
When a fixed-rate or introductory mortgage deal ends, borrowers are typically moved to the lender’s Standard Variable Rate (SVR), which is usually higher.
To avoid the often costly SVR, homeowners remortgage to a new fixed-rate or discounted deal. This not only helps in keeping monthly payments predictable but also in securing a lower interest rate than the SVR.
Improving credit score
Occasionally, homeowners with improved credit scores remortgage to reflect their better financial standing. A higher credit score can qualify them for more attractive mortgage rates and terms, which can result in significant savings over the life of the loan.
Taking advantage of increased property value
In a rising property market, the value of a home may increase significantly. Homeowners can remortgage based on the higher property value to access better mortgage deals or release more equity.
This can provide financial benefits and opportunities that were not available when the property was initially purchased.
Further reading
Purchases – Oakwood Property Solicitors
WHAT TO DO NEXT
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