Are you looking to remortgage your home early? It can be a great way to make the most of your financial situation by freeing up more capital or potentially lowering what you pay each month on your mortgage. But understanding the details and how it works isn’t always straightforward. In this blog post, we’ll take an in-depth look at remortgaging early and equip you with all of the key information that could help you get ahead regarding finance. From refining your credit score before applying for a new loan to weighing up potential options, here’s everything you need to know about early remortgage!
What Is Remortgaging?
To put it simply, remortgaging or refinancing involves changing your current mortgage to a new lender or negotiating a different mortgage deal with your current lender. This is done to either get better mortgage terms or save money on interest rates.
Remortgaging means borrowing enough money to pay off your current mortgage and starting payments on the new loan. This can help you get better loan terms and lower interest rates unavailable when you first got your mortgage. Additionally, remortgaging can allow you to release equity from your home, which means borrowing more than your mortgage balance and using that extra money for other purposes, such as home improvements or consolidating debt.
Before remortgaging, make sure you take into account the costs involved, like arrangement fees, valuation fees, and legal fees. Ensuring that you can sustain the new mortgage payments and that the new terms align with your financial capabilities is crucial.
Understanding Early Remortgaging:
Early remortgaging, also referred to as early repayment or exit, involves remortgaging before the end of your current mortgage term. This means that you are ending your current mortgage agreement before its scheduled end date instead of standard remortgaging.
Remortgaging early can be beneficial for several reasons. This may include finding a better interest rate or a more suitable mortgage product, releasing equity for other investments, or debt payments. Or, it could be due to a negative experience with the current lender, like poor customer service or high fees. Considering the costs and benefits before deciding on early remortgaging is important.
- Early repayment charges: If you decide to break a mortgage agreement before the end of the term, you will likely be charged an early repayment fee. These fees can be quite large, so it’s crucial to include them in your decision-making process when considering whether to remortgage early.
- Fees associated with remortgaging: Like when you remortgage regularly, early remortgaging can incur additional fees such as arrangement fees, valuation fees, and legal fees.
- Interest rates: Before remortgaging for a lower interest rate, it’s crucial to account for all fees and charges associated with the new mortgage to determine the total cost.
- Your financial situation: When deciding on remortgaging early, it is important to consider your current financial situation. If you plan to move house soon, remortgaging early may not be worth the expense and effort.
When Can You Remortgage Early?
Whether you can remortgage early or not depends on the terms of your current mortgage agreement. Usually, mortgage agreements allow for early remortgaging, but there may be fees or charges.
To avoid any issues, make sure to review the terms of your current mortgage agreement for any limitations on early repayment or remortgaging. You may not be able to remortgage until a minimum term has passed or may have to pay an early repayment fee if you remortgage sooner than a specified date.
It’s advisable to talk to your existing lender about the possible fees and charges if you’re thinking of remortgaging early. Also, it’s worth considering various mortgage options and lenders to find the most suitable deal for your particular situation.
If you have a fixed-rate mortgage, you might face limitations on when you can remortgage and avoid early repayment fees. Generally, you’ll have to wait until the fixed-rate interval has expired before remortgaging without incurring any charges. To be sure, it’s a good idea to review the terms of your mortgage agreement.
Benefits and Drawbacks of Early Remortgaging
Benefits of early remortgaging:
- Lower interest rates: By remortgaging early, you may have the opportunity to benefit from lower interest rates. This has the potential to lower your monthly mortgage payments and the total cost of your mortgage.
- Improved mortgage terms: If you remortgage early, you can change to a different type of mortgage, for example, a fixed-rate mortgage or a longer-term mortgage, which might better meet your needs.
- Access to equity: Remortgaging your home early can help you access the equity you have built up. You can use this equity for various purposes, like home improvements or consolidating debts.
- Switching lenders: By remortgaging early, you can switch to a different lender that provides improved customer service or more favorable terms.
Drawbacks of early remortgaging:
- Early repayment charges: If you decide to remortgage before the end of your mortgage term, be aware that most agreements will come with early repayment charges. These charges can be quite significant and may offset any potential savings from better mortgage terms or lower interest rates.
- Fees and charges: If you choose to remortgage early, be aware that you may face various fees and charges, including arrangement, valuation, and legal fees. These extra costs can accumulate rapidly, making remortgaging more costly than sticking with your current lender.
- Risk of negative equity: If your home’s value has declined since you got your mortgage, remortgaging early may result in negative equity, where you owe more than your home’s current worth. This can make refinancing or selling your home challenging.
- Impact on credit score: If you decide to remortgage before the previously set time, it can harm your credit score, especially if you have outstanding payments or a significant amount of debt. This could create obstacles in obtaining credit later on.
Alternative Options to Early Remortgaging:
If you are considering remortgaging early but are concerned about the costs and drawbacks, there are several alternative options that you may want to consider:
- Make overpayments: If your mortgage agreement permits, you can make additional payments on your existing mortgage. Doing so will enable you to pay off your mortgage more quickly and decrease the overall interest you must pay during the mortgage term.
- Extend your mortgage term: If you’re having difficulty paying your monthly mortgage, one potential solution is to lengthen the term of your mortgage. This will lower your monthly payments, but you’ll end up paying more interest over the life of your mortgage.
- Negotiate with your current lender: If you want to lower your monthly mortgage payments but are satisfied with your current lender, you can try negotiating for better terms. Your lender may agree to reduce your interest rate or offer more favorable mortgage conditions if you are a loyal customer who consistently makes payments on time.
- Apply for a mortgage payment holiday: You can apply for a mortgage payment holiday if you are facing financial difficulties. This means you can pause your monthly mortgage payments for a period of time, but you will still accumulate interest during this period.
- Seek financial advice: If you don’t know what to do or have difficulty managing your money, getting guidance from a financial advisor might be helpful. They can explain your choices and help you choose the best one for your situation.
To sum up, homeowners can benefit from remortgaging early if they want to seize lower interest rates, better mortgage terms, and equity access. But they should also be aware of its downsides, including early repayment charges, fees and charges, the risk of negative equity, and its impact on their credit score. Before deciding to remortgage early, it’s crucial to assess the advantages and drawbacks of this option. You may also want to explore other avenues, such as making extra payments, discussing with your current lender about interest rates, extending your mortgage term, opting for a mortgage payment break, or consulting a financial advisor. Your final decision should be based on your personal situation and financial objectives.