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Is it time to remortgage or wait?

Is it time to remortgage or wait?
(FT Money)

Whether on a fixed rate mortgage, a tracker or variable rate deal, there is a lot to be concerned about right now. When the Bank of England increases its base rate, mortgage rates follow suit.

If the homeowner does not remortgage when a fixed deal concludes, the interest rate converts to the lender's standard variable rate – a level that is often consistent with the BoE's current rate. Likewise, those on tracker mortgages will see their monthly repayments rise in accordance with the BoE.

Therefore the question of whether to remortgage now, or wait until further down the line is a big question, and one that requires further context. But there is a long and short answer to this.

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The short answer is that borrowers who are reaching the end of their fixed term should lock in a new mortgage deal and remortgage as soon as possible.

With the BoE's base rate set to increase to at 6 per cent in 2023, all of the best available mortgage deals will soon dry up, leaving only packages with high interest rates.

The longer answer is that whether a borrow should remortgage or not actually depends on several different factors, including:

  • The details of their mortgage deal.
  • How long their fixed rate package has before it expires.
  • Their financial situation.

For example, if they are a fixed rate borrower and are a year to six months away from the end of their fixed term, they should probably start thinking about remortgaging.

If they are more than a year away from the end of their fixed deal however, things can get a little more complicated, as they cannot leave a fixed rate mortgage deal early without incurring an early repayment charge (ERC).

If they are a fixed rate borrower and are more than a year away from the end of their fixed deal, they should consider the following before remortgaging:

  1. Check if their lender charges an ERC – if they do not, the borrower can switch without the additional expense.
  2. Enquire with their lender about a product transfer – some lenders may let customers switch from their current deal to a new one without the cost of an ERC.
  3. Evaluate their loan-to-value ratio – the cost of an ERC depends on the LTV, so if they have a lot of debt outstanding, there is no point remortgaging early as the ERC will be so large that they will not be saving any money.
  4. Overpay their mortgage – most lenders will allow a borrower to overpay by up to 10 per cent each year, allowing them to negate their loan’s rate of interest and reduce their LTV much more quickly. This course of action is particularly useful for those borrowers who are unable to remortgage due to high LTVs and ERCs.
  5. Consult a mortgage broker. Reliable mortgage brokers can help find remortgage deals that are tailored to a person's circumstances.

Those with a tracker mortgage on the other hand, should remortgage as and when interest rates are expected to rise. As their tracker's end date approaches, they should keep an eye on the news to know what to expect.

If they are on a tracker mortgage, they should also always exact an agreement in principle from their new provider. This should lock in their mortgage deal for at least six months, allowing them to make the most of what could be lower interest rates. 

Ultimately, no one can predict what the future may hold, and while hindsight is a wonderful thing, no one can truly say which way the market is going.

If you are going to remortgage, make sure to assess your financial situation before doing so, and make sure you can afford it. While it could save you a lot of money, it can also cost you a lot of money, especially if you are unprepared for exit fees.