Should I Renew My Mortgage Now Or Wait?

Anyone who is wondering ‘should I renew my mortgage now or wait’ might be understandably concerned right now. Some would say the mortgage market has been in turmoil in recent months. Interest have risen rapidly in 2022 and are expected to rise further. For the last decade, interest rates have been relatively low and the sudden increases, in addition to the rising cost of energy and food, have worried many homeowners.

What is remortgaging?

Most fixed term mortgage products are taken out for between 2 and 10 years. Once this product ends, we have a few options as homeowners. The first is to take out a new mortgage product with our current lender, the second is to take out a new mortgage product with a new lender. The third is to do nothing and we automatically drop onto the lender’s standard variable rate (SVR), which is likely to be a higher rate than your previous deal.

Can I save money remortgaging?

The main reasons to remortgage are because an existing deal is ending or to save money. There are several ways you can save money by remortgaging. This may be because you are able to lock in at a better rate of interest than your previous deal, or that you are able to secure a cheaper deal before interest rates go up.

Why should I remortgage?

1. Your deal is about to end. Mortgage can typically be agreed 3-6 months before your current deal ends so it is wise to start looking ahead of your deal ending and before your payments may rise on the standard variable rate.

2. If you are on a higher interest rate and find a deal with a significantly lower rate and therefore lower monthly payments, it could be financially viable to pay the early repayment penalty to exit that deal and move to the new one. However, this needs careful consideration as repayment penalties can be expensive.

3. You can secure a lower loan to value ratio. Often, the lower the amount of borrowing you take compared to the value of your home mean you can secure a better interest rate. If your home has increased in value, this may mean you can get a better interest rate on a new mortgage deal.

4. Overpayment. Most mortgage deals allow you to overpay up to 10%, however you may have a lump sum and want to reduce your mortgage balance.

5. You want to adjust the terms of your mortgage. You may have originally taken your mortgage over 35 years and now want to rescue this down to 25 years so your mortgage is paid off more quickly and therefore will save you thousands in the long run on interest payments.

6. Additional borrowing. When equity is released from a home, the mortgage repayments are spread across the term of the mortgage, meaning it can often be a lot cheaper to get money for things such as home improvements this way rather than taking out a loan.

When shouldn’t I remortgage?

1. Early repayment penalty outweighs the saving. A simple calculation of the repayment charge against the money you will save on the lower interest rate over the new mortgage term will show if remortgaging is cost effective.

2. You have just gone self employed. Lenders will require at least one year’s accounts for a self employed mortgage applicant.

3. Change in credit history. A single missed payment can be a red flag to a lender, so pay close attention to your credit history when thinking of applying for a mortgage.

4. You don’t have much equity in your property. This may be down to the fact you have previously released equity or a drop in property values, but the less equity you have, the higher the loan to value ratio, which means it is likely a higher interest rate will be offered by the lender.

Should I get a fixed-rate mortgage?

A fixed rate mortgage product is a long term product, which gives you the security of knowing what you will pay every month for the length of the deal. It is low risk and gives peace of mind on payments and is popular with people who want to know exactly what they will be paying each month. A fixed rate product means you won’t pay more if the lender’s standard variable rate increases during the term of the product. Typical fixed rate products are 2, 3 or 5 years.

Are interest rates likely to rise?

In November, the Bank of England raised the base rate from 2.25% to 3%, which is the highest level since 2008. At the same time, the mini budget and political uncertainty made the mortgage market panic and future predictions led to a sharp increase in mortgage interest rates. Simply put, each 1% increase results in an increase of £50 per £100,000 borrowed on a typical 25 year mortgage.

As at November 2022, with greater political stability, further increases in the Bank of England base rate may not necessarily mean increases in mortgage payments. Well not for fixed rate products. While variable and tracker mortgages track the Bank of England base rate, fixed rate products take into account longer term predictions and the swap rate, which is the value at which lenders borrow money. This means that

What to do before remortgaging

• Speak to your current lender to see if you can do a product transfer as this may be a good rate and the process will be easier and quicker than switching to a new lender.
• Review your existing deal and work out what your early repayment charges will be.
• Plan ahead. Most mortgage deals can be agreed 3-6 months in advance and can mean you won’t fall onto the lender’s standard variable rate.
• Review your credit file to ensure you won’t be penalised when an application is submitted.
• Look across the market and consider using an independent broker who has access to the entire mortgage market to find you the best deal for you.