Remortgage is a part of getting onto the property ladder. Remortgage means taking out a new mortgage against a property you own to either replace your existing mortgage or borrow more money. The significant reason for remortgaging is to get a better deal. People take out a new mortgage mainly after the fixed-rate period comes to an end. However, there is no guarantee that you will get a better deal.
Some people in UK remortgages when their financial condition changes. Due to economic turbulence, many people find themselves unable to keep up with their outgoings. Illness, job loss and any personal factor can be the cause of a sudden change in your financial condition. This might be when you feel that making payments is no longer possible. A lender may provide you with an alternative deal and remortgage can be that solution.
Well, whatever the reason, there are certain situations when remortgage is not a good idea at all.
The size of your mortgage is small
Paying off an existing mortgage will require you to pay off hefty fees. Once your mortgage falls below a certain level, it will not be worth switching to a new deal because you will not likely save money if fees are high. Lenders mainly try to minimise the loss in the interest they could earn if you did not close the deal before the term comes to an end. In fact, a few direct lenders do allow switching to a new deal if the amount of mortgage is hardly £25,000.
When it comes to remortgaging, you generally consider interest rates on new deals. Do not conclude that the deal is better just on the basis of interest rates offered because fees you will pay to settle your existing mortgage will add up the cost. If you find that fees are very hefty, you should drop the idea of switching to another deal. Always remember that the smaller mortgage will have worse effects of fees. It is better to remain on high-interest rates.
Your financial circumstances have changed making difficult to get a good deal
You must note that your lender will make a credit check and analyse your financial situation when you apply for a remortgage. It is possible that your financial circumstances have changed since you took out your current mortgage. You may have lost your job or you may have opened your own business. Direct lenders like Shinemortgages.co.uk will peruse your income statement and if they find it is a bit wobbly, they will either turn down your application or not offer you better interest rates. Remortgage is a good idea if you are getting a deal with lower interest rates. Otherwise, it is better that you stay on your existing deal.
You have had credit problems
Mortgages are riskier and hence lenders cannot be as flexible as they are in case of short-term loans. Financial Conduct Authority requires lenders to check your affordability before allowing for taking out a mortgage. The guidelines are getting stricter and stricter; the idea is to check the affordability even at the higher interest rate because mortgages are put on the standard variable rate as the fixed interest rate period expires. The lender will run a credit check and take a look at your outgoings to ensure that you will not fall behind repayments. If it calls your creditworthiness into question, the lender will force you to be on existing deal.
You have negative equity
As the market prices increase, the value of houses also goes up. The proportion of your house price that you own is known as equity. If you want to refinance your home, it is better not to have a loan-to-value of more than 80%, but this becomes possible only when the equity is high. As the price of your house drops down, you end up with high loan-to-value. It means you cannot sell your house without settling the whole mortgage. Of course, it will cost you immense losses, the rule of thumb says that you should wait for the prices to go up.
Your current rate is better
You will be lucky enough if your current deal is better. However, it does not mean that you should not look for new deals. Even if you think that you have got the best deal, it is worth checking new deals, after all your ultimate goal is to save money on interests.
The bottom line
A remortgage can help you get a better deal provided your financial circumstances have not turned against you and your credit history does not have a blemished remark. Further, it is no longer a good idea if your current mortgage is small and you have on the best deal.