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Can You Remortgage Early To Get a Better Deal?

Solicitors

Can you remortgage early, before your current mortgage deal ends? The answer is yes, you can decide to remortgage at any time, technically speaking.

However, is it advisable at the time in question? The answer is entirely dependent on the individual’s circumstances. Everyone’s finances are different, and of course the conditions present in the market such as interest rates and the price of new deals.

It’s important to be aware mortgage lenders often impose penalties (Early Repayment Charges or ERCs) for redemption during an agreed fixed rate period. This can mean you are subject to a financial penalty if you pay the whole mortgage off or more than is permitted in a particular twelve-month period, which may well negate any benefits from achieving a better rate when all costs have been carefully accounted for.

It’s a good idea to start looking for a new deal early and well before your current mortgage deal expires. You can secure a new deal up to six months before the expiry of your current agreement, as most remortgage offers are usually valid for six months.

Don’t worry about missing out on general changes in interest rates which impact the market, in the interim, if a better offer comes along, you aren’t tied into the new offer until your existing deal expires and the new one has completed so we can switch your deal again whilst waiting in between. This means you get the ‘best of both worlds’ in as much as you’re protected from rates increasing (if the market moves this way) and changes can be monitored for the better.

“In principle, you can remortgage as often as you like, provided there are benefits in doing so and these can be clearly justified,” stated Matt Illingworth, Mortgage Advisor with Mortgage360. “It’s important to factor in the associated costs such as legal fees, arrangement fees and crucially, any potential early repayment charges if you’re considering exiting your deal before it’s natural expiry date, as these are often quite high. Usually, the timing is critical, so chat with Mortgage360, and we will help you to establish all of the facts and clearly explain your options, so you feel prepared and comfortable to make an informed decision with confidence.”

Matt Illingworth, Mortgage Advisor

Figures show approximately 57% of all UK mortgages will be up for renewal this year, with around 353,000 in the first three months of 2024 alone. 

Source: Office for National Statistics (ONS), February 2024.

Why remortgage?

  • You could secure a cheaper rate payable, lower your monthly payments and save money for changing.
  • You could potentially borrow more money to use for consolidating debts, if this is advisable for example, paying lower interest rates than on credit cards or other borrowings. However, as a traditional loan often has a shorter repayment period than a mortgage, you should factor in the cost of the interest paid over the entire term to make sure you are saving money in real terms.
  • Think carefully before securing other debts against your home. Consolidating debt may reduce your outgoings now, but you may end up paying more overall. Your home may be repossessed if you do not keep up repayments on your mortgage.
  • You can release equity with a remortgage for most legal purposes, such as funding home improvements, large one-off purchases such as a new car or wedding, or helping your loved ones with a gifted deposit for their planned new property purchase.
  • A remortgage may give you the flexibility to make changes to your existing mortgage term, for example increasing your budget to reduce your term, or reducing the amount borrowed by injecting a lump-sum overpayment against the capital outstanding, thus reducing the cost of the mortgage overall by saving on interest charges.
  • If your personal or work circumstances have changed, a remortgage could match your future requirements more closely, if, for example, your income is now significantly higher than in recent years, when perhaps you first took out the mortgage, or if you need to add or remove a partner from the mortgage and deeds.

Why remortgage early?

Your circumstances will dictate whether there are benefits to be gained from remortgaging ‘early’ and before your current deal ends. You may well be able to secure a better rate payable which could save you money over the term of your mortgage, but any ‘early repayment charges’ incurred in doing so would need to be recouped over the initial rate period of any new deal, with a clear ‘net saving’ identified beforehand to even make it worthwhile and an advisable transaction.

When is the best time to remortgage?

In general, most people start pre-planning to remortgage before their current deal expires and before they are moved onto their lender’s Standard Variable Rate (SVR), which will almost certainly be a higher rate of interest than what they are currently paying.

Give yourself plenty of time and consult your mortgage advisor to make sure you are aware of your timescales and are prepared for the change, with all of your documents ready on file.

There are several additional scenarios where it could prove beneficial to look carefully at remortgaging and negotiating a new mortgage deal early;

  • If you are currently paying a variable rate and there is a distinct possibility of rate rises soon, you could benefit from changing to a fixed rate deal for added peace of mind.
  • Talk to your mortgage advisor about your expected Loan to Value (LTV). If your property has increased in price significantly since you took out your existing mortgage deal, your equity (the difference between the property value and the mortgage balance remaining) will have risen too, which may mean you can access more favourable interest rates and deals alike.
  • Equally, if you are seeking other mortgage features like unlimited overpayments and the ability to offset your savings balance against the capital remaining on your mortgage, to reduce your interest charges, then a different mortgage lender may be able to offer you more favourable terms. Also, a new product that better suits your circumstances and serves your current day needs, particularly if these have changed since you first took out your current mortgage.

Understanding your LTV to get a better rate

We have mentioned above that Loan to Value (LTV) can impact the mortgage interest rate you can secure. The more of your home you own, the more attractive you are to lenders to secure the best possible mortgage deal available to you.

So what is your LTV? In short, it’s expressed as a percentage showing the ratio of your mortgage to the actual property value. At the onset, you may have bought a property valued at £100,000 with a 10% deposit, so your LTV at the time was 90%.

If that same property has increased significantly in value since then, this could mean your LTV percentage will be correspondingly lower.

Take a look at the Which? LTV calculator to understand how this is assessed.

Switching your deal with the same lender

Unless you are with a defunct lender, then most lenders will offer Product Transfer deals to their existing customers. Choosing to remain with your current lender comes with benefits, for example, it’s convenient, easier than remortgaging and a lot quicker. Sometimes, but not always, it can be cheaper too, as you may not have to pay any lender fees and definitely won’t need to incur legal costs with a Solicitor.

If you make material changes to your current mortgage as part of a Product Transfer application, then you will have to undergo fresh affordability, underwriting and credit checks again for a new deal, based on the here and now, for example, if you wish to increase your borrowing, change the term, repayment method or add/remove a named applicant.

It’s all a question of who is offering the most suitable and cost-effective deal at the time to match your personal needs and preferences.

Speak to a friendly mortgage broker, here at Mortgage360 today, and take the time to understand and decide what’s right for you.

Remortgaging with a new lender

You’ll need to check and see what your current lender has to offer if you’re considering a remortgage early. Ask your mortgage broker to see what else is available and they will provide you with tailored advice, matched with your circumstances and objectives.

You will in all probability have to pay some fees somewhere along the way, so it’s important to make sure the proposed savings will make the change worthwhile before you apply.

Do I need to remortgage to change from interest only to a repayment mortgage?

Not normally, as your existing lender will consider this and allow it where they can in line with their criteria and policy. It’s a positive move to make in terms of saving on interest charges and potentially paying off your mortgage quicker. Most mortgage lenders are likely to facilitate the change from interest-only to a repayment mortgage, as it reduces their risk exposure, provided you meet their affordability requirements, as your repayments will increase. The majority of mortgage products can easily accommodate both methods of payment or even a ‘part and part’ structure.

To ease the move and strike a balance, there are mortgage products on the market where you can combine the two, so part of your mortgage is interest only and the other part repayment (capital and interest). This is what’s commonly referred to as a ‘part and part’ mortgage.

Changing from repayment to interest-only is a less favourable scenario, most of the time, as this will inevitably increase the cost of your mortgage due to the additional interest being charged over the term. However, it may be needed to lower your repayments from an affordability and budgeting perspective, possibly only for a short period and a temporary amount of time as an emergency measure. Everybody’s needs and circumstances are different of course and there is no ‘one size fits all’ approach to advice.

These days mortgage lenders will require clear proof of a credible repayment strategy before agreeing to such a move, by checking how you intend to repay the capital at the end of the interest-only term and this plan will need to meet with their lending policy and match the value already based against the loan size.

When is a bad time to remortgage?

So, are there times when you should not remortgage early?

  • If you have a small mortgage balance, then it’s unlikely any potential savings would make the move worthwhile.
  • If your finances or credit score have changed for the worse, it’s unlikely you would be able to improve on your current fixed-rate mortgage deal.
  • If there are punitive ERCs (Early Repayment Charges) or exit fees on your current deal, again it’s probably not worth your while.
  • If the value of your home has dropped for any reason, then your LTV may have changed, which will negatively impact on the price of the mortgage deal that you are eligible for.

How long does the process take?

That depends on several factors, including whether you are remortgaging to a new lender or taking a product transfer with your existing lender.

Four to eight weeks is a good guideline when switching your lender, but if there are significant changes in your application, then it could take longer.

If you’re staying put with your current lender and opting for a Product Transfer, then a new product and offer can be secured within a couple of working days normally.

What are the fees associated with remortgaging early?

Again, this will depend on who you remortgage with. Typically you will have to consider the following;

Early Repayment Charges

The ERC (Early Repayment Charge) is usually a percentage of the loan amount remaining, based on the number of years left on your existing deal. They often gradually reduce as you near the end of your fixed rate or variable rate term.

So, looking at a typical five-year fixed rate deal, the ERC could be as high as 5% in the first year, but if you repay in the final year, then this will typically be around 0.50% to 1.50%.

Early Repayment Charges exist to discourage borrowers from changing their mortgage deal early and essentially act as a penalty for breaking the terms of the contract early and to protect the profit margins made by lenders when lending the funds (or tranches of money) at a certain rate from the outset.

Exit fees involved

Your lender will highly likely also have a small administrative exit fee, typically £80 to £200, and this can apply even when you pay off your mortgage in full outside of any initial (i.e. a fixed or variable) rate period.

Arrangement fees

Arrangement fees are commonly charged on the best deals in the market and can either be added to the mortgage borrowing and paid off through your regular monthly repayments, or you can opt to pay them upfront. Adding them to the mortgage will always cost you more due to the additional interest charges spread over the term as opposed to paying them upfront. They typically range from £395 to £1,495 per product, where they do apply.

Incentives

The cost of a valuation of your property is often covered by the lender free of charge, as part of their ‘incentives package’ offered on many of their remortgage deals. It is also common to find cashback being offered on products, often ranging from £250 to £500 and payable at completion. In today’s market, we now have ‘green deals’ where those properties typically with an energy-efficient EPC rating of A to B, can qualify for fractionally better deals.

Advantages & disadvantages of remortgaging

So as a quick summary, what are the advantages and disadvantages of remortgaging at a glance?

Advantages

  • You may benefit financially by borrowing at a reduced interest rate and reducing your mortgage repayments,
  • You may be able to consolidate debt by using the equity in your home to borrow money at a lower interest rate than a traditional loan,
  • You may benefit from switching to a mortgage product that better matches your current circumstances, where these have changed or evolved, since taking out the original mortgage,
  • If you have an interest-only mortgage you can make further savings by switching part, or all, of your debt onto a full repayment (capital and interest) basis.

Disadvantages

  • If you’re changing mortgage providers, you will have to go through the entire application process for a new mortgage again. This could prove an issue if in the meantime your circumstances have changed detrimentally from an application perspective. For example, you may have become self-employed or started a new business, which will impact how lenders view your eligibility.
  • The costs involved in the remortgage process should be considered very carefully too. You may have to pay an early repayment charge, legal fees and valuation fees if you change lenders. This can be avoided by opting to stay with your existing lender and taking a Product Transfer instead if the right products are available to you.

It’s important to look carefully at the total costs involved over the initial rate period and term of the mortgage to assess whether you will save money or not in the end.

So is it worth remortgaging early?

It’s always worth considering. There may be significant benefits for you, depending upon your circumstances. Investigating the potential for remortgaging to replace your current mortgage with the help of a mortgage advisor, like Mortgage360, will ensure you get professional, qualified and expert advice based on your current financial position, and personal circumstances and we will help you to get the best possible deal available to you.

Equally, if the best advice is to stay put and not touch your mortgage, Mortgage360 will advise as such. You have nothing to lose either way by contacting us.

Visit the remortgaging page to find out more.

Mortgage360 is here for all your property needs.

The information contained within this article was correct at the time of publication but is subject to change.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Matt Illingworth

Matt has been advising since 2010 and prides himself on helping people secure their dream home, simplifying the process for his clients and supporting them every step of the way. Matt has a strong, long-term client based philosophy where his clients are his number one priority. When he is not helping his clients, Matt enjoys spending family time with his son Lucca, following football, listening to guitar music and planning lots of sunny holidays!