Is remortgaging a home ever a good idea?
Remortgaging a home is a complicated process, and it’s certainly not a decision that should be made lightly. There are plenty of pros and cons to remortgaging, and with the pros and cons come situations where refinancing is a good idea, and circumstances in which remortgaging can be detrimental to your financial health. If you are wondering whether or not remortgaging is for you, rest easy, we have the answers.
When is remortgaging a good idea?
Remortgaging can be a good idea in several scenarios. Before you jump in with both feet, figure out if your needs fit into these scenarios.
- You want to refinance to reduce your interest rate: If you have a higher interest rate than is currently being offered due to the timing of your purchase, refinancing might save you a lot of money each month. You’ll need to be careful, though. Read the fine print on your mortgage paperwork to ensure you are saving money in the long run.
- Your mortgage lender won’t let you make overpayments: While now uncommon, some lenders will not allow for extra principal payments. That means the terms of your mortgage will not allow you to pay off the mortgage early. If your goal is to make additional payments to bring down your debt more quickly, remortgaging with a lender who allows extra principal payments is probably a good idea.
- You want to get away from an interest-only payment plan: If you are looking to repay your mortgage, and you are stuck on an interest-only plan, it might be time to consider remortgaging. Interest-only periods do end eventually, but at that point, you may end up paying a lot more per month than you’d like. By switching, you might save yourself money down the line, and you’ll begin repaying the actual mortgage sooner.
When is it a bad idea to remortgage your home?
Just like some scenarios make remortgaging beneficial, there are situations in which remortgaging can only make a situation worse. Even if it doesn't make the situation worse, remortgaging could lack long-term benefits.
- You don’t have much equity: If you have to borrow more than 90% of your home's value to refinance, now is not the right time to do it. When you have little equity in your home, finding a reasonable rate is difficult, advise experts. It is unlikely you’ll find a better rate than you currently have. Sticking it out until you have more equity is likely the right choice.
- Your financial situation has changed: Have you recently changed jobs or stopped working? Maybe you’ve made a move towards self-employment and think remortgaging can help you save on the backend. Experts suggest refinancing during these pivotal times is a bad idea. Strict mortgage rules require proof of income, and any significant change in your income could make you ineligible for refinancing, at least in the short term.
- Your creditworthiness has changed: A lot of factors can affect your credit rating. If your credit rating has dropped since taking out your mortgage, it’s crucial to stick things out with your current lender until your credit begins to improve. In fact, a lower credit score will likely garner you a worse rate if you choose to remortgage.
While the above are some hard and fast rules about refinancing, they aren’t set in stone. Every individual's situation is different, and it’s best to speak with a financial expert before making a move. A financial advisor or mortgage loan officer can help you make a sound decision based on the facts of your situation.