When it comes to mortgages, there are a lot of things that borrowers don’t know. This is often because the mortgage industry is complex, and filled with jargon that can be difficult to understand.
One of the most common misconceptions is that you are tied in to your lender for the entire term of your mortgage product.
In reality, you can leave your mortgage at any time – for a price.
There are many reasons why someone might want to remortgage early, and in this article we will explore some of them. We will also look at the costs involved, and whether or not it is worth remortgaging in these circumstances. So if you’re thinking about remortgaging early, read on!
Table of Contents
- Can you remortgage early?
- Can you remortgage at any time?
- Can you remortgage early on a fixed-rate?
- How early can you remortgage?
- Why would you not remortgage early?
- What are early repayment charges?
- When is the best time to remortgage?
- How long does a remortgage take?
- Why is loan to value important?
- How do I calculate my equity?
- True or False?
Can you remortgage early?
Most borrowers will be aware that they are tied to their lender for a specific length of time, and this usually correlates with the term of any special interest rate.
So if you have a 5 year fixed rate you would be tied in for 5 years. Or for a 3 year tracker rate, you would be tied in for 3 years. It is rare, but possible, for penalty periods to run on beyond when the interest rate has finished.
This period of obligation really only relates to the potential exit fees you would incur. You are free to leave your mortgage at any time.
But it is likely to cost you.
Beyond that, you can move your mortgage elsewhere, or pay it off if you have the money.
The reasons for wanting to re-mortgage early will be varied but some of the more common reasons are:
- Move to a better interest rate
- To buy someone out
- Need to borrow more money
- To change mortgage type
- Debt consolidation
Before you decide whether any of these are possible, or not, we would suggest having a chat with a mortgage specialist. Firstly, they will be able to tell you exactly how much it would cost you to remortgage, if this was possible, and you can both decide whether this is then worthwhile.
Secondly, there are many mortgage solutions available that are only apparent to someone who deals with mortgages everyday. We come across many scenarios where a borrower believes that they have no choices, but an independent broker can find a way to help them.
Can you remortgage at any time?
If you have agreed a new mortgage and you are happy paying the early repayment fees then you can remortgage at any time.
You don’t always have to wait until the end of your current deal.
But ERCs are expensive and for most people this amounts to thousands of pounds.
So you would be wise to discuss your plans with a remortgage expert before you start signing anything. A broker will be able to tell you if switching early is the best route, and if it is, they can arrange it all for you.
Problems can occur if you attempt to move your mortgage during the first six months, with less lenders looking for this type of business.
Can you remortgage early on a fixed-rate?
Yes you can, but whether you should is another matter.
By leaving a fixed rate product early you will most likely need to pay an early repayment fee. You need to weigh up the cost of remortgaging carefully to make sure it’s worth it.
Your existing lender can’t stop you from leaving but they are free to apply the early exit fees as written in your mortgage agreement.
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
How early can you remortgage?
There’s no minimum period that you have to hold a mortgage for before moving it to a new lender. But by moving it earlier than agreed will incur exit fees, so there needs to be a good reason.
If you transfer the loan away within the first six months you may have some difficulty arranging the new mortgage. This is because many lenders need you to have owned a property for at least six months, this is commonly referred to as the ‘six month mortgage rule‘.
Fortunately, not all lenders are so concerned with this period of ownership, so a good independent mortgage broker will be able to locate a competitive ‘day one remortgage‘ lender for you. Who needs a day one remortgage?
A good option is to get yourself mortgage ready and work out your re-mortgage choices 3 months before your deal ends. You won’t incur any fees just by looking and you can apply for a new mortgage so that it is ‘ready to go’ when needed.
Why would you not remortgage early?
UNAWARE – You may be completely unaware that this is a possibility, believing that you are contractually tied in for the full term.
DON’T THINK IT’S WORTH IT – This can often be the attitude to remortgaging in general. But if you are unhappy with your interest rate, or the mortgage is becoming unaffordable, then it is worth seeking some advice to see what the options are.
FEES ARE TOO HIGH – Even with a ‘fees free’ remortgage offer, there’s often some costs that have to be paid, and if you are leaving a deal early this will also include exit fees.
HIGH INTEREST RATES – There’s no point moving your mortgage over to a higher interest rate if you don’t need to.
What are early repayment charges?
An early repayment charge (ERC) is a fee imposed by your lender when you switch to a new mortgage deal before the end of the fixed-term period. The ERC is designed to compensate the lender for any loss of expected interest income if you repay all or part of your loan earlier than anticipated. It usually applies when switching mortgage providers, although it can also apply when looking for a better deal with the same lender (product transfer).
For example:
If you are 2 years into a 3 year fixed rate deal, you would be charged exit fees as the lender expected you to stay with them for the full 3 year period.
It’s important to note that ERCs are based on a set formula which can vary from lender to lender. They may be determined by either a percentage of total outstanding balance or by a set sum regardless of the size of loan taken out. Some lenders also charge a mortgage exit fee in addition to the ERC.
You will find more useful information in our Guide to Early Repayment Charges.
When is the best time to remortgage?
Normally, the best time to start organising your new mortgage is around three months before your current deal ends (or the end of any ERC period).
The worst time to start organising your new mortgage is once your interest rate deal has ended and your monthly payments have shot up!
This allows you and your broker plenty of time to find the best possible deal. The advantage of applying for a deal in advance is that you can then move straight from one deal to another, without any gap in-between.
This is possible because the new re-mortgage offer will be valid for 3-6 months from the date it is issued, and there’s no need to switch as soon as it is ready. Your broker will make sure that the new mortgage starts once the exit penalties no longer apply.
Of course, personal circumstances may mean that this is not possible and you then need to consider remortgaging before your deal ends.
How long does a remortgage take?
It’s hard to be really accurate when answering this question as it depends on how busy the lender is and how complicated your situation may be.
On average a straightforward remortgage will take 4-8 weeks to complete.
The quickest way will be to do a product transfer with your current lender, and just switch interest rate. If you’re unsure which one is best, we have an article that compares a mortgage product transfer to a remortgage.
Alternatively, if you are looking to move lender and borrow extra money, or also apply a transfer of equity, then the process could take a bit longer.
Why is loan to value important?
You will find that lenders and brokers talk about loan to value, or LTV, a lot!
This is because the amount of equity you have in your property will make a big difference if you want to re-mortgage early. A loan to value is a calculation that represents the mortgage amount as a percentage of your homes value.
For example:
If your home is worth £500,000 and you have a £250,000 mortgage, then your LTV would be 50%. Your mortgage represents half of the value of your house.
For a lender, the LTV figure represents a risk factor, as the higher the LTV, the more exposure the lender has. So an LTV of 90% poses more risk than an LTV of 50%.
Most lenders will offer lower rates to those borrowers with the lowest loan to value percentages. Anything below 50% tends to get the very best rates.
LTV also affects whether a mortgage company will give you any money at all. All lenders have their own internal risk profiles. These lay out how much risk they are willing to take on loan to value, any bad credit, property style or location, employment status etc.
There are quite a few lenders that will only lend up to 90% LTV. This is the maximum amount of exposure that they have decided is right for them. So if you needed a 95% mortgage then you would need to find a lender who is willing to go up to 95% LTV.
Deposit
There’s no requirement for a cash deposit when remortgaging.
However, if you have spare savings you may be able to get a better deal if you use them to reduce your mortgage LTV.
How do I calculate my equity?
Equity, or home equity, is the difference between the value of your home and the amount you owe on any mortgages or secured loans.
It is the portion of a property that you actually own outright.
If you owned a property worth £300,000 with a £200,000 mortgage then your equity would be £100,000.
If your property has increased in value, you have more equity, and you may be able to qualify for cheaper rates as the LTV has reduced.
True or false?
You don’t need a broker to remortgage?
TRUE – You don’t need a broker to remortgage.
HOWEVER – A mortgage broker is more likely to find you the best deal, according to your needs, even with bad credit.
You should never pay exit fees?
FALSE – Sometimes paying exit fees is OK.
BECAUSE – It may be beneficial to do so if you are moving your mortgage to a cheaper deal.
It’s better to stay with your current lender?
FALSE – It would be easier but not necessarily better.
BECAUSE – It’s possible that a more cost effective deal is available, or one that has the flexibility/options you need.
You have to remortgage for the same amount?
FALSE – You are able to remortgage for any amount you like.
BECAUSE – It’s a completely new loan and the only constraints will be the new lenders criteria.
What happens when a fixed rate mortgage ends?
Is your fixed rate mortgage coming to an end? If so, then you may be wondering what your choices are, and how long it all takes. In this article we explain your options, where to go for advice and discuss what you can do to make sure you don’t pay more than you have to.
FREQUENTLY ASKED QUESTIONS
Can you remortgage your house for any reason?
If you are borrowing more to raise capital then most reasons are OK. The most common would be: home improvement, to pay off debt , new car, gift to children
Can you remortgage to buy another house?
Yes, this is a popular option and we have an article that covers this in more detail here.
Can you remortgage before your term is up?
Yes, this would be classed as an early remortgage. It’s likely that exit fees will apply.
Can you remortgage early with bad credit?
Remortgages are available for people with bad credit, although there are fewer to choose from. Check your credit report and then contact a mortgage broker for advice.
Does remortgaging early take longer?
No, it should not make any difference. Providing that you have anticipated the fees to pay. The average time would be 4-6 weeks.
Can you remortgage early with the same lender?
Remortgaging with the same lender is called a product transfer. While it should be possible to do this early, each lender will have their own rules and conditions.
