UK

When Is The Best Time To Remortgage Your Home?

18/05/2015 12:05 BST | Updated 18/05/2015 12:59 BST
mattjeacock via Getty Images
Cutout paper house on a wooden background with keys and calculator

If you’re in the market for remortgaging your home, then now is a fantastic time to be doing it. Mortgage rates are at record lows, with plenty of cheap deals of all kinds. It’s now possible to get a rate that’s roughly half what it was back when rates were at their highest. It is definitely a good time for people who are remortgaging. However, that’s not necessarily the same as saying it is a good time to remortgage: because that depends on where you stand at the moment.

There are some people who are clearly ready to remortgage, including those who are on an uncompetitive tracker rate, and those on a standard variable rate - which is usually one of the least competitive rates offered by the lender. These people are paying over-the-odds for their mortgage, and may want to go back to the market in order to cut their monthly payments.

A few years ago being on a SVR was a very expensive place to be. In more recent years SVRs have dropped to historic lows, so that people who have been moved onto this rate haven’t felt particularly motivated to make a move. However, there are still substantial savings to be made from remortgaging to a more competitive deal.

If you are on an older tracker mortgage, the difference remortgaging can make at this stage are impressive. Assuming, for example, you were to move a £150,000 20-year-mortgage from a mortgage charging 5% to one charging 2.5%, you could save just under £200 a month. You will need to factor in the fees associated with that remortgage, and divide them by the number of months that the mortgage lasts (So, for example £2,000 of fees on a five year mortgage would work out as an additional £33.33 a month). However, in many cases the difference in the rates will more than pay for the fees.

It’s not only those seeking a cheaper deal who are in the remortgaging market. There are also plenty of people who need to change their arrangements in order to free up some equity from their home. They may have built up tens or even hundreds of thousands of pounds of equity in their property over the years, so if they are facing a cash shortfall elsewhere in their budget - because of debts, one-off expenses, or life events - it may make sense to generate a cash lump sum by remortgaging.

111900594

Yet having a good reason for remortgaging doesn’t necessarily make it the right thing to do. One question you need to ask is whether you are still tied into your current deal. In many cases the early repayment charges on a fixed rate deal, for example, will be high enough to wipe out any potential savings from remortgaging, so it makes sense to sit tight and wait for the fixed period to run out. If you are tied into a deal, the only way to check whether a remortgage is a good idea is to do the maths yourself, and factor in the cost of all the fees and penalties involved in a move.

Alternatively, some people have their hands tied by the fact that they may not be in a position to get a better deal. They may be in a new job, and still be working through their probationary period. Alternatively, they may have gone into business for themselves, and not yet built up enough of a track record for someone to consider lending to them. In some cases their income may have fallen, which would mean they fall short of lending criteria for a new mortgage.

It’s not just your employment status that can affect your ability to remortgage. Your credit record could have been damaged by missed payments on loans or credit cards, which makes it hard to borrow again. Or you could simply have got a mortgage back when lending criteria was more relaxed, and the new rules could mean you are no longer eligible for a mortgage of the same size.

Some people could stand to save by remortgaging, and may be in a position to get a great deal, but may be choosing to hold back because they have a view on what might happen in the future. Falling inflation has led some people to speculate that interest rates are unlikely to rise for some time to come, so there’s a chance that mortgage deals will become even more competitive – especially fixed rate deals.

This kind of crystal ball gazing is notoriously unreliable, as there are so many different factors that affect interest rates and the mortgage market itself. Even the Bank of England has been having a tough time predicting the point at which interest rates are likely to rise again. However, there are people with strong convictions, who are prepared to take the risk and wait, just in case the picture looks even rosier a few months down the line.

Others may be keen to wait for the outcome of the general election. Traditionally there is a pause in the mortgage market around election time, as people wait to find out who will be in Number 10, and the kinds of policies they are likely to implement that will affect interest rates and householders.

There are all sorts of reasons to remortgage in a market like this one, but equally there are reasons why people are holding back. Only you will know your own position, and whether a remortgage is the right thing for you. Certainly with rates at historic lows, it makes sense to at least do the maths, and work out how much money you could free up – or how much you could stand to save every month by tracking down a more competitive deal.