If you are wondering whether you can remortgage early, the short answer is yes, you can remortgage whenever you like. However, if you are currently tied into a fixed-rate mortgage deal (commonly 2-5 years), then remortgaging before the end date may lead to early repayment charges.
While remortgaging early can be tempting in some situations, navigating potential financial penalties and understanding the process is crucial. This guide covers everything you need to know about remortgaging early, from assessing the pros and cons to exploring the potential fees.
Why should you remortgage?
Remortgaging allows you to switch mortgage deals to one that is more suited to your needs. It could have lower interest rates, more flexible terms, or both. You can also remortgage to increase your borrowing. You would typically do this either when moving to a more expensive property, or simply to make use of the equity built up in your home.
To make the best of your remortgage options, timing is key. Therefore, it’s important to understand when is a good time to remortgage, based on your current circumstances. Let’s discuss when the best time for remortgage is and when remortgaging early makes sense.
Can you remortgage early, before your current deal ends?
Yes, it’s possible to remortgage before your current deal ends. Remortgaging early can be a financially savvy move, especially if you’re eyeing a better rate or different mortgage terms. However, it’s not without its caveats. You might have to pay early repayment charges or other fees. It’s therefore important to weigh the potential savings against these costs.
And while you can theoretically remortgage whenever you want to, most lenders won’t let you if you’re still within the first six months of buying your property. Most people don’t remortgage this early as it’s unlikely you’ll save money due to early repayment charges.
Always do your homeworkto ensure this step aligns with your long-term financial goals. In essence, early remortgaging can be a smart choice, provided it’s done with careful consideration of all implications.
What is an early repayment charge?
Early repayment charges (ERCs) are essentially fees you pay your lender if you pay off your mortgage early or make large overpayments that exceed a certain limit. This compensates them for the lost interest they would have earned over the remaining term.
Think of it like this: you’re breaking their initial agreement, so they charge a fee to make up for the income they lose. ERCs typically range from 1% to 5% of your outstanding mortgage balance and are most common during the fixed-rate period. Some lenders offer “no ERC” mortgages, but these usually have higher interest rates.
Before doing anything major with your mortgage, factor in potential ERC costs and compare them to the expected benefits. Consulting a mortgage advisor can help you navigate your specific situation and choose the best option for you. Remember, ERCs are just one piece of the puzzle; careful planning and expert advice are key.
How to avoid paying an early repayment charge
There are a few strategies you can use to be able to avoid early repayment charges:
- Time your remortgage wisely: If you only have a few months left on your mortgage term, some lenders may waive the charges associated with switching lenders. Or if you are remortgaging with the same lender (product transfer), you may be able to switch to the new mortgage deal around three months before your current deal ends without penalty fees.
Opt for a mortgage without charges: Inquire with your lender about mortgage deals that do not include early repayment charges. Some fixed-rate mortgages may not impose these charges, or you might become eligible to avoid them after a certain period of repayment.
Overpay strategically: Making regular overpayments within the allowed limit each year can lead to significant savings on interest over the long run. Always consult your lender before making overpayments.
Consider porting your mortgage: When moving homes, explore the option of porting your mortgage, allowing you to maintain your mortgage with the same provider.
Steer clear of the Standard Variable Rate (SVR): Upon the conclusion of your mortgage deal, you’ll typically transition to your lender’s SVR, commonly resulting in higher interest payments. Ensure you arrange a new deal to start as your previous one ends to avoid being placed on the SVR. Verify that you won’t incur an Early Repayment Charge in the process.
When is the best time to remortgage?
While remortgaging is possible at any time, strategic timing can maximise its benefits. The ideal window often falls within 3-6 months before your current deal ends. This allows for research and decision-making without last-minute pressure. It also allows you to avoid exit fees from your current lender. However, the optimal timing goes beyond fixed deadlines. If any of the following situations apply to you, remortgaging might be advantageous:
End of a fixed-rate deal: If your current fixed-rate mortgage or introductory offer is nearing its end, failing to remortgage could mean transitioning to the lender’s standard variable rate (SVR), often leading to significantly higher mortgage payments.
Better interest rates elsewhere: Finding a more favourable interest rate elsewhere prompts the need to assess whether the early repayment charges (ERCs) and remortgage fees outweigh the benefits of securing a lower rate before your current deal expires.
Concerns about interest rate fluctuations: In uncertain markets with potential interest rate increases, transitioning from a variable rate to a fixed rate might provide stability. However, factoring in ERCs and remortgage fees is crucial.
Need for additional funds: Remortgaging can facilitate borrowing more funds for purposes like home improvements, significant purchases, or debt consolidation. Leveraging the equity in your home often allows access to larger sums compared to credit cards or loans.
Significant growth in equity: If your property’s value has substantially risen, leading to increased equity, you might benefit from a lower loan-to-value (LTV) ratio. This can potentially unlock access to better interest rates, or at least the current market’s best rates.
Need for more flexibility: Switching to a mortgage deal with more flexible terms can be appealing for borrowers seeking greater control over their finances. The ability to overpay without penalties or access features like payment holidays can be helpful for some.
By considering these factors alongside your current deal’s end date, you can make an informed decision about whether remortgaging sooner is right for you. Remember, it’s crucial to weigh the long-term financial benefits against any upfront costs associated with an early remortgage.
When should you avoid remortgaging?
There are instances where remortgaging might not yield the desired benefits or could prove impractical. If any of the following circumstances apply to you, remortgaging might not be the most suitable immediate option:
Small mortgage debt: If your outstanding mortgage balance is relatively low, typically less than £50,000, the fees associated with remortgaging could outweigh any potential savings from securing a lower interest rate. However, consulting with a broker before completely ruling out the option is advisable.
High early repayment charges (ERCs): If significant ERCs are attached to your existing deal and you’re not close to its end, remortgaging might not be financially viable until the current deal expires. Considering the total cost of repaying ERCs, which can amount to as much as 5% of your outstanding loan balance, alongside remortgage fees, it’s unlikely that available deals would result in any savings.
Financial setbacks or poor credit score: If your financial situation or credit score has deteriorated since getting your mortgage, securing a better deal through remortgaging might be challenging. In some cases, it may even be impossible, particularly if financial difficulties have significantly impacted your credit rating.
Property depreciation: If the value of your property has decreased since taking out the mortgage, your loan-to-value (LTV) ratio may have risen. This potentially leads to negative equity, where you owe more than your home is worth. In such cases, remortgage rates available are likely to be higher than your current rate. Therefore, lenders may not offer remortgage options to individuals in negative equity.
How long does it take to remortgage?
Remortgaging is usually quicker than taking out a new mortgage, especially if you’re remortgaging just to lock in a new rate. The typical length of time for a remortgage to complete is around 4-8 weeks, but this could be longer if you’re extending your borrowing.
Should you remortgage with your existing lender or switch to a new lender?
Remortgaging can unlock lower monthly payments, but navigating the options can feel overwhelming. You might wonder whether you should stay with your current lender (known as a product transfer) or explore different mortgage lenders.
Staying put has its perks. You will have a simpler remortgaging process, familiarity with your lender, and potentially avoid hefty early repayment fees (ERCs). But you might miss out on the best deal available due to limited options.
On the other hand, switching to a different lender broadens your horizons. You will get access to a wider range of competitive mortgage offers and find features your current deal lacks. However, prepare for potential ERCs and a slightly longer process.
The best choice depends on you and your circumstances. Do you prioritise the absolute lowest rate, even with ERCs? Or do you prefer sticking with a known entity and a faster process?
Remember, comparing rates and terms across different lenders, considering arrangement fees and potential savings on monthly payments, is crucial. Seeking advice from a mortgage broker can help ensure your remortgage decision aligns with your long-term financial goals.
Conclusion: Can I remortgage early?
In conclusion, there’s no reason why you can’t leave your fixed-rate mortgage early. But if you are tied into a fixed-term deal, you might have to pay an early repayment charge (ERC), which can be huge, often 2-5% of your outstanding loan. So you’ll need to consider if the total sum of your early repayment charges and other potential fees outweigh the benefits of switching, as you may find yourself worse off than before.
To avoid exit fees and delays that result in you being stuck on your lender’s standard variable rate (SVR), it’s a good idea to start looking for new deals around 3-6 months before your fixed term ends.
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