Why remortgage? What are the benefits?

Why should you remortgage? Mainly because it stops you getting ripped off when your initial period is ending and you're about to move on to a more expensive SVR rate.

Why remortgage?

When you agree a mortgage deal, you sign up to what is known as an initial rate or introductory period.

You're happy with that rate and for the next few years you work your finances and budget around it.

However, this initial rate will come to an end – whether that's in 2 or 10 years – and when that happens you'll move on to your lender's standard variable rate (SVR). These rates are the bog-standard rate your lender has, and on average are twice as expensive as most introductory rates.

Remortgaging stops that happening. You remortgage and agree a new introductory period with a new lender. And that's not the only benefit.

Is remortgaging a good idea?

Yes. It isn't always right for you – more of that later – but remortgaging can really transform your finances and allow you to save £100s a month, free up lump sums for home improvements or debt consolidation.

If you think about how savvy we are with energy bills or phone contracts, you should really always do a full market comparison of remortgage deals every few years or when you about to go on to the SVR.

Benefits of remortgaging

What are the benefits of remortgaging your house? Let's take a look.

Remortgage to a cheaper rate than the SVR

As we've already explained, lenders only offer a fixed-rate mortgage for a set number of years – usually 5 or less, but it can be more. After this, they’ll move you to a SVR mortgage, which is twice as expensive on average.

Remortgaging gets you off this higher rate and you lets you choose a new mortgage rate that almost always lower. In fact research from Which? shows that on average people remortgage and save £4,000 a year compared to the SVR.

So, if your mortgage deal is about to end, it’s worth looking around for another one to ensure your payments don’t go up.

Remortgaging because your house price has gone up

Before you remortgage, your debt – the mortgage sum – is reassessed against what your home was worth.

That feeds into your loan-to-value (LTV), which is one of the main ways in which a bank judges risk and sets an interest rate.

And house prices in the UK normally rise. In fact, on average for the past 10 years or so, they have risen by 2-3% annually.

So if your property value has increased since you first negotiated your mortgage, there's a good your property will be worth more (not to mention your loan will be lower due to the repayments you've been making) and you'll be at an LTV that comes with a lower rate.

Prices start to drop more dramatically once you can get to the 80% LTV threshold, then there are further drops at 75, 70, 65 and 60.

And of course, the lower rates of a lower LTV mean lower monthly repayments.

We make remortgaging quick and easy. We compare over 10,000 deals from over 90 lenders and match the search results to your requirements.

Remortgaging to borrow more money

Remortgaging may mean you can raise money fairly cheaply on low rates for other things. On average the rate of a secured mortgage is 2 or 3 times less than a personal loan and can be 10 times cheaper than a credit card.

If you want to remortgage for additional funds the bank will want to know why. Remortgaging for home improvements or remortgaging for debt consolidation are two of the more common reasons.

These are generally considered acceptable reasons, but your lender may have stipulations like:

• You must have had a mortgage with them for a certain amount of time
• You must be up to date with your mortgage repayments
• You are only allowed to borrow over a minimum amount (and a maximum amount within your affordability)

There are also other things to think about. Your repayments will go up as you are borrowing more, so will you pass the affordability checks? And can you get the money cheaper elsewhere? Yes, your remortgage rate will be cheaper than a loan but you'll be paying it off for a lot longer.

Remortgaging to pay off your mortgage quicker

If you’ve had a change in financial circumstance, like a pay rise or a lump sum since your mortgage started, you may want to pay off your mortgage quicker. You'll then be mortgage free.

To do this you need to overpay on your mortgage – that's basically paying more back each month than you need to.

The problem is that lots of mortgage deals don’t allow you to do it. And if they do, it’s likely to be a small amount each month or you will be charged. In lenders’ eyes, the longer you owe them money, the more interest they’re getting.

But, if overpaying is your primary aim, it's easy enough to remortgage to a new deal that has very small or no overpayment charges.

Should you remortgage?

The main question to ask yourself is will remortgaging save me money. We've seen people literally save thousands in one remortgage, so why wouldn't you?

There are only two main reasons:

• Remortgaging fees can cost a lot
• Remortgaging requires too much effort

Let's take a quick look at both of them.

I'm not sure whether to remortgage because of high fees

These high fees are called early repayment charges. They can cost you thousands, but if you wait until you are about to hit the SVR. You won't have any at all and you'll be free to remortgage.

You may have some other remortgage fees to pay such as new valuation fees, legal costs and other charges, but these tend to be a lot less than the money you will save. In short if you avoid the ERCs, you will mostlikley save money as long as your circumstances haven't changed too much.

I'm not sure I can be bothered to remortgage

Yes – mortgages aren't that fun. As much as we try :)

Remortgaging isn't quite as long winded as buying a house, and Mojo will help you every step of the way. Honestly, if you look at it like it's a few hours work and then you'll have £100 a month more every month for the next 2 years… it becomes much more appealing.

Still not sure?

Then a product transfer may be for you. That's when you remortgage with the same lender and we can help you do it in a phone call. You may not save quite as much, but there are hardly any forms to fill out.

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