Can You Remortgage Early?

What Does Remortgaging Early Mean?

Remortgaging early means switching your mortgage to a different lender before your current mortgage deal’s fixed term or tracker period ends. Unlike a product transfer, which involves staying with your existing lender, remortgage involves moving to a new lender with improved terms.

Key Distinctions

• Remortgaging: Moving to a new lender with different terms.
• Product Transfer: Staying with the same lender but switching to a new mortgage product.

Reasons to Remortgage Early

Homeowners may consider early remortgaging for various reasons. Here are some common motivations:

1. Better Interest Rates

If interest rates have dropped significantly since you took out your mortgage, remortgage early could save you money on your monthly repayments.

2. Improved Credit Score

A higher credit score often results in better mortgage deals. Switching to a better lender may unlock lower rates if your credit score has improved.

3. Borrowing Additional Funds

Homeowners may remortgage to release equity for:

• Home improvements
• Consolidating debts
• Gift to Family
• Large Purchase Such as Family Holiday or Wedding
• School Fees

4. Adding or Removing a Partner

Life changes like marriage, separation, or property ownership restructuring can prompt early remortgaging.

5. Escaping a Poor Mortgage Deal

If your current mortgage deal is unfavourable, remortgaging may help you switch to a better one.

Pros of Remortgaging Early

While early remortgaging comes with costs, there are significant advantages to consider.

• Potential Savings on Interest Rates
  • Securing a lower interest rate may reduce your monthly repayments, saving you thousands over the mortgage term.
• Improved Financial Flexibility
  • Early remortgaging may enable you to release equity or consolidate debts.
• Customized Mortgage Terms
  • Switching lenders can offer access to mortgage products with more flexible features, such as overpayment options or payment holidays.
• Access to Funds
  • This could give you access to your equity if your existing lender is unable to help you borrow the required amount.

Cons of Remortgaging Early

Despite its potential benefits, early remortgaging isn’t always the most cost-effective choice. Consider these risks:

• Early Repayment Charges (ERCs)
  • Most fixed-rate or tracker mortgages include early repayment charges, which can be a significant cost.
• Additional Fees
  • Valuation fees
  • Legal fees
  • Broker fees
• Risk of Extending Your Mortgage Term
  • Lengthening your mortgage term may reduce monthly repayments but could cost you more interest over time.

How to Calculate Early Repayment Charges

Calculating the potential costs of early remortgaging is essential. Typically, ERCs are calculated as a percentage of your outstanding mortgage balance. The easiest way to calculate is to ask your current lender.

Here are some examples of how some lenders calculated them. For example, on a 5-year fixed rate, some lenders may charge like this:

• 1st Year: 5% of remaining balance
• 2nd Year: 4%
• 3rd Year: 3%
• 4th Year: 2%
• 5th Year: 1%

Others may charge 5% for all 5 years. It’s important to understand your early repayment charges before making any decision.

An early repayment calculator can help you determine the actual cost of leaving your current deal. I would do this with my clients to ensure it’s the right decision.

When Does It Make Sense to Remortgage Early?

While ERCs may seem daunting, there are situations where remortgaging early is still worthwhile.

• Significant Drop in Interest Rates
  • If interest rates fall drastically, the savings on monthly repayments may outweigh the ERC costs.
• Credit Score Improvements
  • Improved credit scores can unlock lower mortgage rates, making the switch worthwhile.
• Avoiding Future Rate Increases
  • If market forecasts predict rising interest rates, locking in a better rate early can be a smart move. However this is risky, as you are gambling against the unknown.

Alternatives to Remortgaging Early

If you want to improve your mortgage terms but avoid high ERC costs, consider these alternatives:

• Product Transfers
  • Switching to a new product with your existing lender may offer better terms without legal fees or early repayment charges.
• Additional Borrowing
  • Some lenders allow you to borrow extra funds without a full remortgage process.
• Second Charge Mortgages
  • This type of mortgage is secured against your home, allowing you to borrow without changing your existing mortgage deal.

How to Prepare for Early Remortgaging

Preparation is key to making a successful switch. Here’s what you should do:

1. Check Your Credit Report: Ensure your credit score is in top shape to access better mortgage deals.
2. Review Your Mortgage Terms: Identify your ERC fees and weigh them against potential savings.
3. Seek Mortgage Advice: Consulting with a mortgage advisor can help you identify the most cost-effective options.

FAQs About Remortgaging Early

Can I remortgage early without paying fees?
Yes, some lenders may waive ERC fees under special circumstances. Additionally, some deals have no early repayment penalties.

Is it possible to remortgage early for debt consolidation?
Yes, consolidating debts through a remortgage can simplify your finances, but you should calculate the long-term costs carefully.

How long does it take to remortgage early?
Typically, the process takes 4–8 weeks, depending on lender requirements.

Will my home be revalued when I remortgage early?
Yes, lenders often conduct a new property valuation to determine your home’s current value.

Can I overpay my mortgage to avoid remortgaging early?
Yes, some mortgage products allow overpayments to reduce your debt without incurring ERC fees.

How much can I borrow with an early remortgage?
This depends on your home’s equity, income, and the lender’s affordability criteria.

Conclusion

Remortgaging early can be a powerful financial move, but it requires careful evaluation. By considering your goals, potential savings, and ERC fees, you can determine if switching lenders is the right decision for you. Always seek expert advice to explore your options fully.

• Mortgages for Poor Credit
• Book Your Strategy Call To Discuss Your Options
• Money Advice Service – Remortgaging Guide
• Citizens Advice – Mortgage Support