Remortgage - A case study
John & Lisa currently have an £85,000 mortgage over 25 years @ 5.8% for £537.31pm. They want to raise an additional £15,000 for home improvements.
A new mortgage for £100,000 on today's rates would raise £15,000 and also save them £9.47pm.
Representative example:
A mortgage of £100,000 payable over 25 years on a repayment basis at an interest rate of 4.00% per annum (fixed for the first 5 years) would require 24 monthly repayments of £527.84pm.
The total amount payable would be £167,357.76 made up of the loan amount plus interest of £67,357.76. The overall cost for comparison is 4.8% APRC.
Important information:
This example is for illustration only and is not a personal recommendation.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Rates and payments may vary depending on your individual circumstances and market conditions.
Remortgaging involves switching your existing mortgage to a new lender or deal without moving home. It typically aims to get a better interest rate, reduce monthly payments, or release equity. The process involves applying for a new mortgage and using it to pay off your existing one.
The best time to remortgage is usually when your current mortgage deal is about to end, typically before the end of a fixed or discounted rate period to avoid reverting to the lender's higher standard variable rate (SVR). It’s also beneficial to remortgage if interest rates have dropped, your property value has significantly increased, or you need to borrow additional funds.
Remortgaging can involve various fees, such as early repayment charges (ERC) on your existing mortgage, valuation fees, legal fees, arrangement fees for the new mortgage, and any broker fees if you use a mortgage broker. It’s important to consider these costs when calculating the overall benefit of remortgaging.
The amount you can borrow depends on factors like your property's value, your income, existing debts, and the lender's criteria. Generally, lenders will offer up to a certain percentage of your property’s value, known as the loan-to-value ratio (LTV), and will assess your ability to repay based on affordability checks.
Benefits of remortgaging include lower interest rates, reduced monthly payments, releasing equity for other financial needs, and switching to a more suitable mortgage product. However, risks include incurring fees that outweigh the savings, extending the mortgage term which could increase the total amount paid, and the potential for higher interest rates if you don’t lock in a good deal.
