We’ve all seen news stories over the past few years about the mortgage landscape being a treacherous one to navigate. With the Bank of England interest rate now dipping to 5% from its 16-year high of 5.25%, it’s hoped that many mortgage lenders will start to follow suit and lower their rates to borrow money too. This could see many people looking to remortgage early as more attractive deals start to emerge, but can it be done, and is it worthwhile?
You can remortgage early, in fact, you can remortgage at practically any time. However, you may find yourself paying high exit fees (Early Repayment Charges) if you remortgage too soon and paying for a mortgage that is still much more expensive than those that could be available just a few months later. In general, remortgaging cannot happen in the first six months of a fixed term, something worth being aware of in the current climate.
In this edition of our blog, we look at remortgaging early and what it may mean for the approximate £1,700 bn worth of outstanding mortgages in the UK.
How early can I remortgage?
In theory, you could remortgage at any time, but it isn’t wise to do it too soon. The earlier you remortgage; the more substantial the early repayment charges will be. As a rule, it’s widely accepted that you cannot remortgage in the first six months of a mortgage term or even when there is an Early repayment Charge on your mortgage due to the fact those charges may not be saved by remortgaging.
In most cases, lenders allow you to begin the remortgage process up to six months before your current deal expires if it’s a fixed rate and anytime if it’s an SVR (Standard Variable Rate). This then means that when your deal ends, you can go to your lender with the deal you found six months ago and move straight onto that, or their cheaper one if a better deal exists. Each lender will have its own rules though so remember the potential for an ERC if you attempt it too early.
Back to early remortgaging, you should only consider an early remortgage if the benefit outweighs the consequence. That may sound like common sense but let’s assume you’ve found a new deal at a better rate. That’s great, but if the early repayment charge means that overall, you spend more, remortgaging wasn’t really worth it.
You could also consider remortgaging early if your current fixed-rate deal is ending. You can look for a new, more affordable product and then, likely either avoid the ERC or only have a minimal one to pay.
You may also have built up significant equity in your home. If the value of your home has increased, your mortgage will be for a smaller percentage of the value than when you bought it. With increased equity and a lower LTV, you could find yourself offered much better mortgage deals than before as you’ll be borrowing less.
Why remortgage early?
There are several reasons you may consider remortgaging early. These could include:
- You’ve found cheaper deals
- You want to consolidate debt
- You need to raise cash
- You’ve found a more flexible product
How much is the early repayment charge when you remortgage early?
The early repayment charge or ERCs will vary depending on how soon you plan to remortgage. Where most lenders allow you to start scoping out a new product six months before your current one ends with no penalty, others may have more stringent timeframes you must work to. In most cases you search the market for a new deal 6 months prior to your current deal ending so when your current deal ends you start the new mortgage which means you stay on a low rate. If you change to the new deal before the end of your current rate then you may still be charged the Early Repayment Charge so be careful.
Lenders will have written into your mortgage agreement what the ERC is, and it can typically be anything from 1-5% of the outstanding mortgage balance.
This means you could easily be paying tens of thousands of pounds just to remortgage early. As a result, it requires a great deal of thought.
Are there other costs for remortgaging early?
Yes, so it isn’t only the ERC you have to consider. If you are planning to switch lenders, you may be charged an exit fee. This could easily be a few hundred pounds to add to the thousands you already need to think about. In addition, your current lender may also add a fee for moving your property deeds to a new lender. This could add a few hundred pounds more to the total amount too.
You’ll then have to look at the fees for starting a new mortgage product. Whilst rates may be low, product fees may be high. You could need to pay an extra £2,000 just in arrangement fees. Solicitor and valuation fees will also need to be added, and in some cases, a booking fee too. Collectively, these three charges may amount to a further £500-£1000. Some lenders may offer free services for some elements of mortgages, but you should research this before committing to anything. Some lenders also offer slightly higher interest rates with no arrangement fees.
Can I remortgage early with my current lender?
You can, and this is sometimes the easiest option. Known as a product transfer, you can avoid many of the fees we mentioned above as much of the work has already been done by the lender. In some instances, this could even mean a reduction or removal of the early repayment charge. You may also find you are offered special interest rates as an existing customer.
Whilst there could be savings in this respect, you should make sure you shop around as the rates on offer may not be as good as those offered by the competition.
Can I remortgage early and move to a new lender?
Yes, and this is where most of the additional cost comes from. If you remortgage early and move to a new lender, there will be the early repayment charges as well as the solicitor fees, valuation fees and more for you to account for, but only if you remortgage before your current deal ends because you may be charged an Early Repayment Charge.
If remortgaging early is something you are considering, it requires a great deal of thought. Our team at Mortgage Saving Experts can help. With years of experience in all aspects of mortgages, we can guide you through the process, so you get the best possible remortgaging deal for you. In our role as fee free mortgage brokers, we remain impartial, offering unbiased, informative advice. Why not contact us today to learn more about remortgaging and see how it could be the ideal option for you.
