According to several reports over the years, many homeowners are unaware of what a remortgage is or what benefits it could offer. This shows that despite experts encouraging all homeowners to shop for a remortgage early, many are missing out. Unfortunately, in the current economy, if a homeowner is unaware of remortgaging and they come to the end of their mortgage term without the knowledge of what to expect they could be in shock and the hit to their household budget could take a long time to repair. 

There are many choices in remortgaging. A homeowner could, if and only if they desire to do so and are approved, take out more money with the new loan. The money could be used to invest back into the home. This could increase the value of the home, or prepare it to be put onto the market. Sometimes homeowners will take out remortgages and increase the loan amount to turn the home into a partial rental to bring income into the family budget. This is especially true for either starter homes that the homeowners plan to grow into, or when a homeowner could downsize but decides to stay and create income.

A homeowner could also choose to cash out their built-up equity with an equity cash release remortgage. The cash could be used by the homeowner how they see fit. The funds could pay down debt, upgrade the home, or as mentioned previously, prepare the home to sell, or convert part of the home into a rental area. 

However, increasing the loan size or cashing out equity is not required and the misconception by many homeowners is that a remortgage will make them owe more money. They mistakenly stick to their loan and as it adjusts after the initial term they accept the consequences without the knowledge that they are probably spending more money than needed.

A remortgage could simply be a transfer of debt to a new loan with a different interest rate and a new term. Usually this will result in savings as the homeowner could remortgage for a lower interest rate.

When the homeowner’s term expires, they could remortgage or they will be moved to their lender’s standard variable rate (SVR). A remortgage interest rate could be much lower than a SVR. Since the interest rate determines the cost of borrowing, it would be a good strategy to try and obtain the lowest interest rate possible. A SVR could have an interest rate that is double or more the interest rate level of a remortgage. Therefore, a homeowner should shop for a remortgage to determine what savings are available rather than simply accept being moved to a SVR.

A remortgage could also allow a homeowner to choose a fixed rate deal. A fixed rate, unlike a variable rate, stays steady. It therefore shields the homeowner from interest rate hikes should they occur.

Fixed rate remortgages are currently the top choice for homeowners. They are choosing a fixed rate to avoid rate hikes that have been happening since the end of 2021.

In December 2021, the Bank of England’s Monetary Policy Committee (MPC) raised the pandemic impacted standard base rate from almost zero at 0.1% to 0.25%. It was the start of eleven consecutive meetings in which the MPC voted to increase the base rate due to growing inflation. Last month, the MPC meeting resulted in the base rate rising to 4.25% and it made borrowing more expensive than it has been in over a decade.

Homeowners that obtained a loan when lenders were offering their own historically low interest rates and are coming to the end of their mortgage term could be shocked if they simply allow their loan to be moved to their lender’s SVR. They could see their repayments increase by hundreds of pounds per month. However, a remortgage could help by offering a lower interest rate and with a fixed interest rate lock in the rate to shield against any further rate hikes.

The MPC will not meet in April but will in May. The meeting could result in another increase in the base rate. Rather than risk paying more than necessary if a homeowner has been put onto a SVR, shopping for a remortgage could be helpful. Those close to coming to the end of their mortgage term should consider shopping for a remortgage as well. Even those not close to having their terms end could benefit by shopping for a remortgage and discovering what offers are available currently. 

Some homeowners might decide to take on a penalty fee to allow remortgaging early with current rates rather than wait out their term and possibly face higher rates.

Shopping for a remortgage is simple to do online. Visiting a remortgage lender website could quickly provide a quote. Going to other sites would offer quotes to compare. Visiting the site of a remortgage broker could offer many quests from a variety of lenders to review and compare to find the best remortgage. Brokers could also have exclusive offers that lenders don’t offer directly to borrowers. 

While a remortgage is not something a new homeowner is immediately concerned about, days will pass and it will be important to understand that a remortgage could be helpful at some point. Shopping early offers important information to make a smart financial strategy for when a mortgage term is due to end. Understanding how a remortgage could help and taking advantage of the opportunity is a step in the right direction for homeowners to keep their borrowing costs as low as possible and avoid paying more than necessary.