When considering remortgaging, it’s essential to balance the potential benefits with any drawbacks. Our below guide provides a comprehensive overview of the pros and cons of remortgaging, aiming to address your queries and assist in making a well-informed decision.
Pros of Remortgaging
Remortgaging when your existing deal ends is usually always a prudent financial decision, allowing you to ensure your home is being financed on the best terms possible. Below are some of the advantages to remortgaging.
- Reduced Interest Rates: Securing a lower rate can decrease your monthly payments and lead to substantial savings over the mortgage term. This is particularly advantageous if market rates have fallen since you first mortgaged or if your improved financial status qualifies you for more favorable rates.
- Equity Release: Remortgaging to unlock equity can be a smart move for financing significant expenses, such as home improvements (which might, in turn, boost your property value), or for consolidating high-interest debts into a more manageable monthly payment.
- Optimising Your Mortgage Terms: Switching to a mortgage with terms that better match your current situation can offer several advantages, like saving on long-term interest if your income allows for higher monthly payments over a shorter period.
- Debt Consolidation: Merging other debts with higher interest rates into your mortgage can streamline your financial commitments, potentially lowering your overall monthly outgoings, though it’s crucial to consider the long-term interest implications when doing this.
- Leveraging Market Changes: Remortgaging offers the opportunity to benefit from favorable market conditions, such as locking in a lower rate with a fixed-rate mortgage to avoid future interest rate hikes.
Cons of Remortgaging
It’s also important to consider both sides when remortgaging, as there may be some other considerations to make before you proceed. Below are some of these considerations which may be relevant, depending on your circumstances.
- Early Repayment Charges: Changing your mortgage can lead to charges, especially during a fixed-rate period, which may offset the benefits of a new mortgage deal. Always seek advice (from a broker like ourselves) to weigh up the costs and benefits of paying your ERC to remortgage early.
- Incurred Additional Costs: While many mortgage products these days offer free product, legal and valuation fees, the process can involve fees in this regard, making it important to factor these into your decision. Sometimes, it works out beneficial to choose a product with fees if the total cost to pay over the new fixed term is lower. We can give you guidance in this regard!
- Increased Total Interest: With the cost of living crisis, you may be considering extending your mortgage term, which is a viable option in many cases. However, while a longer mortgage term can reduce your monthly payments, it will likely increase the total interest paid across the loan’s lifespan.
- Risk of Negative Equity: In a market downturn, there’s a chance that your mortgage debt could exceed your property’s value, particularly if substantial equity is withdrawn. Always seek advice in this regard especially if your property value has decreased or if you have very little equity in your property.
- Complexity in Choice: The vast array of mortgage products on the high street on your own can be daunting, and without proper guidance, you might not find the most suitable deal for your needs. This is where an expert mortgage advisor such as Green Mortgages is worth their weight in gold.
As experienced mortgage brokers, we believe that remortgaging can be a powerful financial tool when used wisely. It offers homeowners the opportunity to adapt their mortgages to changing personal circumstances, take advantage of better interest rates, and access equity in their homes for important investments. However, it’s not a one-size-fits-all solution. The decision to remortgage should be based on a thorough evaluation of individual financial situations, future goals, and market conditions.
We always emphasize the importance of considering long-term impacts, such as total interest costs and potential changes in property value. Our role is to guide clients through this complex landscape, helping them understand the nuances of each option and make choices that align with their long-term financial health and lifestyle aspirations. In essence, remortgaging can be a beneficial strategy, but it requires careful consideration and expert advice to ensure it’s the right move for each unique scenario.