Can you remortgage early?

06 May

Can you remortgage early?

Looking to remortgage? Don’t assume you have to wait until your existing deal finishes before you can start the ball rolling.

If your current mortgage deal ends within the next 6 months, or you’re concerned that rates are edging up and want to lock into a new deal now, it is possible to secure a deal even if you’re currently tied into your existing mortgage. We take a look at everything you need to know to help you determine the answer to that all-important question “is it worth remortgaging early?”

There’s one risk to watch out for: you might be tied in to your current rate and have to pay an Early Repayment Charge (ERC) if you switch before the end of the deal.

The key things to know about an early remortgage

How early can you remortgage?
You can remortgage at any time but there’s no point doing it if it’s not likely to benefit you in the long run. You want to choose a time when there’s a positive benefit to moving your mortgage.

This may be when:

  • you’ve come to the end of a fixed rate mortgage deal
  • you have built up more equity in your home
  • interest rates are lower than you’re paying at the moment

It used to be that people stayed with the same lender for the whole period of their mortgage. This is no longer the case. You can switch mortgages just as you can move from one energy provider to another, or you can even choose to remortgage early with the same lender.

At the end of your fixed term mortgage
Fixed rate mortgages run for a set term, typically between 2 and 10 years, and then usually move on to the lender’s standard variable rate of interest (SVR) which is often higher. If you have a fixed rate mortgage at the moment, when you get to the end of the period you’ll need to remortgage if you don’t want to go onto the standard variable rate.

Whether the interest rate on the new deal is higher or lower than you’ve been paying depends on what’s happening to rates at the time. You don’t have to stay with the same lender and should certainly shop around to see what is on offer.

When you’ve built up more equity in your house
Equity is the difference between what your property is worth and the amount you owe on your mortgage. The proportion of the two is called the loan to value ratio (LTV). If the price of your house has gone up, your mortgage will be a smaller percentage of the property’s value than it was when you started.

The more equity you have and the lower the LTV, the better remortgage deal you could get.

If your mortgage is now 75% of the property’s value, you now have the equivalent of a 25% deposit in the property, so when you remortgage you might get better terms than you got if you had to take an 85% mortgage when you bought it. Once you get to below 50% LTV you should have access to almost all of the deals on the market, subject to you meeting the rest of the lender’s criteria.

When interest rates are lower than you currently pay
Lenders are continually coming out with new mortgage deals and you might find there are cheaper deals around. This could save you a lot of money.

You can lock in to a fixed rate mortgage and know that your repayments will stay the same for however long you’ve fixed for, regardless of what happens to other rates.

If you are mid way into your fixed rate but still decide to remortgage, Early Repayment Charges might apply to your current deal. These can be quite large amounts but you should consider it if interest rates have dropped since you took out your fixed rate mortgage.