If you’re considering remortgaging, one of the first questions you may ask is: “What’s the lowest rate available?”
It’s a completely understandable question. The interest rate on your mortgage can make a significant difference to your monthly payments and the overall cost of your mortgage.
But when you’re looking at remortgage options, the lowest rate isn’t necessarily the whole story.
When reviewing a mortgage, it’s important to look at the overall structure and cost of the mortgage, rather than just the headline rate. Things such as the mortgage term, flexibility, fees and early repayment charges can all affect whether a particular mortgage is suitable for your circumstances.
And remortgaging doesn’t necessarily have to wait until your current mortgage deals ends.
Depending on your circumstances and the terms of your existing mortgage, you may be able to arrange a new deal in advance, although there can be costs involved in changing your mortgage before your current deal finishes.
What Should You Consider When Remortgaging?
There are several things worth looking at when comparing mortgage options.
These can include:
• Your current mortgage interest rate
• When your current deal ends
• Any early repayment charges
• Arrangement or product fees
• Your outstanding mortgage balance
• The remaining mortgage term
• Whether you want to make overpayments
• Whether your circumstances have changed
• Whether you need to borrow additional funds
• The overall cost of the new mortgage
Looking at these factors together can give you a much clearer picture than simply comparing interest rates.
The Overall Cost of the Mortgage
A mortgage with a lower interest rate isn’t automatically the cheapest option.
Some mortgage products have higher fees attached to them, while others may have a lower rate but fewer upfront costs.
For example, a mortgage with a higher arrangement fee but a lower interest rate could potentially work out cheaper over the period of the deal than a mortgage with a lower fee but a higher interest rate.
This is why it’s useful to compare the overall cost of the mortgage, including both the interest and any applicable fees.
You should also consider what happens if fees are added to the mortgage rather than paid upfront.
Although this can reduce the amount you need to pay initially, adding fees to the mortgage means borrowing more. This can increase the amount of interest you pay over the life of the mortgage.
The important thing is to look beyond the headline rate and consider the full cost.
Your Mortgage Term Matters
A mortgage is usually a long-term financial commitment, with many residential mortgages originally taken over 25 years or longer.
When remortgaging, you may have the opportunity to review the remaining term of your mortgage as well as the interest rate.
Depending on your circumstances, you may consider:
• Extending the mortgage term, which could reduce your monthly payments
• Keeping the existing term, maintaining your current repayment timeframe
• Shortening the mortgage term, which could help you repay the mortgage sooner
However, there is a balance to consider.
A longer mortgage term may reduce your monthly payments, but it could also mean paying more interest over the life of the mortgage.
On the other hand, shortening the term could mean higher monthly payments, even though you may repay the mortgage sooner.
The right approach will depend on your circumstances, affordability and longer-term plans.
Mortgage Flexibility and Overpayments
Another feature worth considering when reviewing a mortgage is flexibility.
Some mortgage products allow borrowers to make overpayments, meaning you can pay more than your usual monthly payment when your circumstances allow.
Making additional payments could help you:
• Reduce your outstanding mortgage balance
• Potentially shorten the mortgage term
• Reduce the amount of interest paid over time
For some homeowners, this flexibility can be particularly useful if they expect their financial circumstances to change in the future.
However, mortgage products can have restrictions around overpayments, so it’s important to understand exactly what is permitted before making additional payments.
Early Repayment Charges and Other Remortgage Costs
It’s also important to understand any early repayment charges that may apply to your existing mortgage.
Depending on your current mortgage deal, you may have to pay a charge if you repay the mortgage early or leave the deal before the agreed period ends.
For example, an early repayment charge could potentially apply if you:
• Switch mortgage lenders before your current deal ends
• Repay a significant amount of your mortgage during the deal period
• Repay the mortgage in full before the end of the agreed period
There may also be other costs associated with changing your mortgage, depending on the mortgage product and lender.
This is one reason why it’s important to look at the costs involved in remortgaging alongside any potential savings.
Should You Remortgage Before Your Current Deal Ends?
You don’t necessarily have to wait until your current mortgage deal expires before looking at your remortgage options.
In some circumstances, borrowers may be able to secure a new mortgage deal in advance of their existing deal ending.
The timing and options available can vary depending on your existing mortgage, the lender and the new mortgage product.
It’s therefore worth reviewing your position early rather than leaving it until the last minute.
Starting the process early may give you more time to understand your options and consider what works for your circumstances.
Can You Remortgage to Consolidate Other Debts?
For some homeowners, remortgaging may also lead to a discussion about existing borrowing.
Depending on your circumstances, it may be possible to use additional borrowing secured against your property to repay other debts, such as credit cards or personal loans.
However, debt consolidation through a mortgage isn’t suitable for everyone and needs careful consideration.
For example, debts that were previously unsecured could become secured against your home, and spreading borrowing over a longer mortgage term could mean paying more interest overall.
It’s therefore important to consider the full cost and implications rather than simply looking at whether your monthly outgoings could be reduced.
A mortgage adviser can help you understand the options available and the potential costs involved based on your individual circumstances.
A Simple Remortgage Checklist
If you’re considering remortgaging, it can help to start by gathering some basic information about your existing mortgage.
Consider:
When does your current mortgage deal end?
What interest rate are you currently paying?
Is there an early repayment charge?
How much do you still owe on your mortgage?
How long is left on your current mortgage term?
Are there any fees associated with your existing or new mortgage?
Would you like the flexibility to make overpayments?
Have your circumstances changed since you took out your current mortgage?
Do you need any additional borrowing?
What is the overall cost of the new mortgage?
Having this information to hand can make it easier to understand what you’re comparing and what questions you may need to ask.
Looking for Remortgage Advice in Chester?
If you’re considering remortgaging and aren’t sure where to start, speaking to a mortgage adviser can help you understand what options may be available.
At Financial Fortress, our mortgage advisers are based in Chester and support clients across Cheshire, North Wales and surrounding areas.
As independent financial advisers, we take a straightforward, no-jargon approach to financial advice. When it comes to mortgages, we look at the wider picture rather than simply focusing on the headline interest rate.
Whether you’re approaching the end of your current mortgage deal, considering changing your mortgage term or simply want to understand what options may be available, our team can help you review your circumstances and explore the mortgage options available to you.
If you’d like to discuss your mortgage, get in touch with the Financial Fortress team to arrange an initial conversation.
In Summary
Remortgaging isn’t just about finding the lowest interest rate.
While the rate is naturally an important part of the decision, it’s also worth considering the wider mortgage structure, including:
• The overall cost of the mortgage
• Product and arrangement fees
• The remaining mortgage term
• Monthly affordability
• Overpayment flexibility
• Early repayment charges
• Your changing circumstances
• Any additional borrowing you may need
Taking the time to look at the bigger picture can help you understand whether a particular mortgage is suitable for your circumstances.
If you’re considering remortgaging in Chester, our mortgage advisers at Financial Fortress can help you explore the options available and understand the costs involved.
Your home may be repossessed if you do not keep up with repayments on your mortgage.
Read more of our articles about mortgages and your options:
Interest-Only Vs Repayment Mortgages: What’s the Difference?