The Advantages and Disadvantages of Remortgaging

Remortgaging is the process of changing your mortgage from one lender to another or on occasion an internal change carried out with your current provider. It can also be used to describe raising a mortgage on an unencumbered property. There are many reasons that people may consider a remortgage and in turn some benefits and pitfalls of doing so. We’ve compiled a short list for some of these below to highlight them and assist with your possible consideration to remortgage your property.

Advantages

1. More appropriate interest rate
2. Save money
3. Better criteria
4. Improved customer service
5. Greater choice
6. Can act earlier on plans
7. Home Improvements

1. More appropriate interest rate: Changing your mortgage could give you the ability to obtain a better suited product than that which your current lender can offer. Not all lenders’ products offer the same benefits. For example, where one lender may permit you to overpay without penalty up to 10% of the balance another may permit 50%. These differences could mean one suits your requirements much better and as such changing your lender could be more advantageous to you.

2. Save Money: No one wants to pay more for something than they don’t need to and the same can be said for your mortgage. By changing lender, you may obtain a scheme that saves you money over remaining with your current provider. Whilst the market has changed for the better regarding customer retention, it still pays to shop around.

3. Better criteria: All lenders have their own criteria to decide who they will lend to and how much. This varies across the board so where your current lender can’t assist, you may find that an alternative provider can. This can especially be the case regarding affordability where one lender may deem you can afford to borrow less or more than another. There may also be reasons some lenders will not lend i.e. if raising funds for a deposit for a buy to let purchase. Again, if your current lender will not permit this you may find one that does and in turn will enable you to realise your plans.

4. Improved customer service: Whilst there is typically no great requirement for frequent interaction with your lender, you may still be dissatisfied with the level of service you have received from them. Changing your mortgage to a more customer focused provider could be of benefit to you.

5. Greater Choice: Limiting your choices to simply that which your current lender can provide would be a huge disservice to you. As such, knowing that by having the facility to remortgage to somewhere else opens up a much wider scope of choice and in turn hopefully a more competitive marketplace for you the consumer.

6. Can act earlier on plans: This can especially be the case when looking to review and secure a new rate in advance of your current deal expiring, and indeed in a market where interest rates are on the rise. Many lenders will only allow an existing customer to reserve or secure a new rate anywhere between 3-4 months prior to the expiry of a current deal however, if applying to a new lender this is typically increased to 6 months. This therefore allows you to secure a rate much earlier and not miss out if rates increase thereafter.

7. Home Improvements: There can be several benefits to remodelling your home, including increasing the value of your home and/or providing your family with extra room. You might be planning a new bathroom or wish to design the kitchen of your dreams. Remortgaging your property can be cheaper than other methods of funding these improvements such as personal loans or credit card. See here to find more about Remortgaging for home improvements.

Disadvantages

1. Not as cost effective
2. Hidden or unexpected costs
3. Time
4. Further underwriting
5. Unnecessary change in mortgage term

1. Not as cost effective: Re-mortgaging will invariably involve additional work for the new lender including legal matters, and as such you may find the costs involved for changing provider could be higher than if you remained with your current one. As with any financial decision when comparing schemes make sure you take the overall costs into consideration.

2. Hidden or unexpected costs: Hopefully if you’ve done you research well, these should not occur however, sometimes things pass us by or indeed we were simply never aware something would incur a cost. Many lenders will offer fee free remortgage deals that cover the main costs involved but, this will not cover everything. Some of the typical one’s people may overlook where relevant are:

• Exit/admin fees for repaying current mortgage
• Postponement of second charge
• Telegraphic/money transfer fees

3. Time: To change lender involves a new application and in turn an assessment by an underwriter. It will also involve the services of solicitor to carry out certain legal checks for the lender to ensure that they are satisfied with the legal status of the property and your ownership. Some mortgages will complete within an expected timescale of around 6 weeks however some can take much longer where workloads dictate or where an unexpected complication may occur such as a legal query on the property title register. If you have prepared well in advance any delay should still not represent an issue however, if time is of the essence remaining with your current lender may prove more beneficial.

4. Further underwriting: This is perhaps more in relation to simply securing a new product on your mortgage. If this is all you wish to do many lenders will have no requirement to reassess your ability to afford the loan nor underwrite the loan in any way, including credit checks. As such, if your circumstances or indeed the lender’s criteria has changed since you took the loan out with them this should have no bearing on your ability to choose a new rate. In short, as long as your mortgage is up to date and your lender has a new rate available for you, this should be able to be selected. If you remortgage, the new lender will want to assess you at that point in time as a new customer including any necessary credit checks and verification of income.

5. Unnecessary change in mortgage term: When you arrange your mortgage you will stipulate the term you wish this to be repaid over i.e. 30 years etc. At the time you are considering a remortgage, be this due to you reviewing your rate or any other reason such as a need to raise funds, you may not now have a round number for years remaining i.e. it may be 24 years and 3 months. If it’s possible to remain with your current lender this term can typically remain exactly the same however, if changing provider many will only allow a new mortgage to be set up over another round year. Therefore, taking the example earlier, if you will have 24 years and 3 months remaining, a new lender may need you to reduce this to 24 or, not something we would recommend unless it is the best course of action, increase this to 25 years.