While remortgaging early may be a last resort for some, for others it represents a strategic financial move. It’s important to be aware of the implications before making a decision to remortgage before your term ends. Whether you’re looking to secure a better interest rate, access equity in your home or adjust to changing financial circumstances, remortgaging before your current deal ends has its associated benefits and risks.
In this guide, we’ll explore why you might consider remortgaging early, the costs involved and how to determine if it’s the right decision for you.
What is Remortgaging?
Remortgaging is the process of taking out a new mortgage to replace your existing mortgage deal, typically to secure a better rate, release equity or change terms.
When you remortgage before the end of your existing mortgage term, it’s considered an early remortgage. This may be beneficial if rates have dropped, but it could also incur early repayment fees depending on your current mortgage deal.
Why Remortgage Early?
Securing a Better Interest Rate
One of the main reasons homeowners decide to remortgage early is to lock in a more favourable interest rate. If rates have dropped significantly since you first took out your mortgage, you might consider switching to a lower rate now rather than waiting for your current deal to end.
Accessing Home Equity
If you’ve built up significant equity in your property or its value has increased, you might be able to remortgage early to release the capital. This can be useful for large expenses like home improvements or consolidating debt. Alternatively, you may be able to take out a Further Advance, which differs from remortgaging in that you borrow the additional amount required from your existing lender at a new rate.
Changing Financial Circumstances
Life events such as a change in income, job status or starting a family might prompt you to adjust your mortgage. Remortgaging early can offer flexibility in managing your financial situation by changing your mortgage terms to better suit your current needs.
The Costs of Remortgaging Early
While you can remortgage whenever you like, fees will typically apply if you intend to leave a mortgage deal that is set for a specific number of years.
Early Repayment Charges (ERCs)
You may face Early Repayment Charges from your lender when you remortgage before your current deal ends. These are often calculated as a percentage of your remaining mortgage balance, which can be a substantial amount. Typically, ERCs apply to fixed-rate mortgages during the agreed period.
Setting Up a New Mortgage
As well as Early Repayment Charges, there are also the standard fees associated with entering a new mortgage deal. This can include arrangement fees, valuation fees and legal fees. Typically valuation and standard legals provided free.
In some cases, even with these fees, remortgaging early can be financially beneficial if the new deal significantly reduces your interest rate. However, it’s important to calculate whether the long-term savings outweigh the immediate costs. Consulting our expert mortgage advisers can help you to determine the right course of action.
Key Considerations
Timing
The timing of your remortgage is crucial. Although you might be tempted to secure a lower rate before your current deal ends, it’s important to weigh this against the costs, which could negate the benefits of switching prematurely. Predicting future interest rates can also be difficult and you may find that rates continue to fall after you remortgage.
Financial Goals
Planning a remortgage to align with your financial goals is essential. For example, if you want to pay off your mortgage sooner, switching to a loan that allows overpayments could be beneficial. However, if your priority is to reduce your monthly payments and free up cash, you should carefully consider how remortgaging early will impact your overall financial position.
Costs vs. Savings
Before making a decision to remortgage early, it’s important to calculate whether the potential savings from reduced monthly payments outweigh the expenses involved in securing a new deal. This is especially important for those with smaller outstanding balances, where the cost of remortgaging might not be justifiable.
Process of Early Remortgaging
1. Review Your Current Mortgage Terms: The first step is to check the terms of your existing mortgage. Find out whether there are any Early Repayment Charges and when your current fixed term ends. This will help you understand the costs involved.
2. Assess Your Financial Situation: Gather all the necessary documentation, such as proof of income, credit score and any other details that might influence your mortgage application. Ensure your financial situation supports your decision to remortgage, particularly if you are looking for a lower rate or better terms.
3. Compare Mortgage Deals: Shop around to compare different mortgage options. This can be done by using comparison sites, contacting lenders directly or consulting with a mortgage broker. Bear in mind that the goal is to find a better deal that justifies the costs of remortgaging early.
4. Apply for a New Mortgage: Once you’ve found the best deal, submit an application with your new lender. This may require a property valuation and additional checks from the lender to assess your financial stability.
5. Complete your Remortgage: Once approved, your new lender will pay off your existing mortgage. You’ll then start repaying your new mortgage based on the agreed terms. Ensure you’re clear on the fees involved and your new repayment schedule.
Expert Advice on Remortgaging Early
While the process of remortgaging early might seem daunting, seeking advice from a mortgage adviser ensures you make the right choice for your circumstances. Our experts can provide insights on market conditions, support you with your application and ensure your remortgage aligns with your long-term financial goals.
Get in touch to discuss your mortgage options today.
