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Remortgaging to save money: Is it an option for me?

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Remortgaging to save money: Is it an option for me?

Remortgaging to save money has been an option many people have been opting for in recent years. For most people, mortgage repayments represent their largest monthly outgoing and any way in which you can save money or repay the debt quicker is good news. Mortgage rates are still at historically low levels and likely to stay that way for some time, so could you save money by remortgaging?

Benefit from better interest rates

Most mortgage terms last for between two and five years. Therefore, if yours is coming to an end, there could well be better deals available. Banks generally offer the lower rates and deals to new customers. Once you come off the initial term you’ll be put onto the lender’s standard variable rate, which is often higher than you’d been paying before. By switching to another lender, you might be able to take advantage of a lower interest rate and save some money.

Homeowners with large amounts of equity in their property, who have a lower loan-to value ratio, will often be offered a greater choice of mortgage products. The loan-to value amount is a percentage based on the total you’re looking to borrow compared with the current value of your house. If your home has increased in value since the start of your current deal or you’ve paid off a large amount, then you may be able to find a product with a lower rate. You need to bear in mind that the valuation will be based on your lender’s assessment, which might not reflect current selling prices.

Improved credit rating?

You could also benefit from lower interest rates if your credit rating has improved. Over the course of the current term, if you’ve been making your repayments on time and haven’t defaulted on any of your other debts, the lender might assess you as a lower risk. This will open up more deals and allow you to save money.

Tenants rented house

How much you can actually save will generally depend on the amount of your mortgage, the loan-to-value percentage and how long you have left to pay off. Those homeowners who are deemed to be a lower risk will be able to choose from a wider range of products, with more beneficial rates.

Achieve greater flexibility

If you want to be able to pay more off your mortgage or have a lump sum to contribute, then moving to a more flexible product could help save you money. It’s worthwhile remortgaging for this reason if you’ve seen a large increase in your income since the start of your current term and can now afford to pay off more each month.

An offset mortgage could offer you this flexibility. These are linked to your savings account, so any money you have in this is offset against the outstanding mortgage debt. This enables you to have a lower interest rate and potentially pay off the mortgage years earlier. By repaying your debt over a shorter period you will pay less interest in the long run.

What to consider when remortgaging

Remortgaging doesn’t always save you money, even if the deal looks good on paper. You need to take into account any fees and costs that are associated with switching lenders. These can include admin fees, valuation costs and solicitor’s fees. Before you commit to a new lender, you should look at exactly how much the new deal will potentially save you and then add on any charges. If you’re still going to save money then it’s worth considering.

The remortgage process

If you think that a remortgage could save you money, then you need to look into it further. Firstly research the market and see which lenders have the best products available. You can either do this independently or through a mortgage broker. It’s also worthwhile speaking with your current lender to see if they can offer you a better deal.

remortgaging to save money

Once you’ve found a suitable product, work out how much you’ll actually save and the fees involved. If it seems like a good deal, then submit your application to the lender. If you’re approved in principle, they’ll then need to value the property and provide you with a formal offer. You’ll also need to appoint a solicitor who can obtain a redemption statement from your current lender, deal with the conveyancing and complete the process.

Depending on your personal situation, remortgaging can be a way of saving money, either with lower interest rates or a shorter repayment term. As with all financial products, it’s worth seeking independent financial advice before committing to anything.

 

 

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About Catherine Stern

About Catherine Stern

Catherine Stern is a freelance writer with a background in marketing and PR. She currently writes web content on a range of subjects, from finance and business to travel and home improvements. As a working single mum of two young boys she understands the pressures that today’s working parents face and the topics they want to read about.

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