Our Guide to the Dangers of Remortgaging Too Early

Len Burgess[1]

Len Burgess

Money Savings Advice guide to dangers of remortgaging early

Most people find that one product won’t suit them at every stage of their mortgage journey. Most people remortgage several times, getting the best rates and deals. By remortgaging at the right time, you could save money and reduce the amount that you’ll end up paying for your home.

Remortgaging too early can be much more expensive than getting your timing right. Dangers of remortgaging too early include early repayment charges, and your next mortgage being more expensive.

Making a mistake could be costly. There are financial risks involved in the process of remortgaging, so you’ll want to get your timing right so that you don’t regret your decision.

Read on to learn more about the dangers of remortgaging too early.

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Remortgaging Early Repayment Charges

Many mortgages come with early repayment charges. An early repayment charge is a fee that you’ll pay for breaking out of a mortgage contract early. The charge helps lenders to get back some of the money that they’ll lose when you move away.

Early repayment charges aren’t small, insignificant fees. Usually, they’re around 1-5% of your total mortgage value, which means that early repayment charges could easily total more than £5,000.

If you’re planning to remortgage to save money, those early repayment charges could wipe out any savings you’d make.

Some types of mortgage don’t usually come with early repayment fees. These include a lender’s Standard Variable Rate. If you’re on a different mortgage deal, but know that it’s coming to an end, it’s sensible to wait until the end of the mortgage term or to move once you’re on the SVR.

Waiting until the extra fees won’t be charged could make the remortgaging process much cheaper.

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How Much Is Your Home Worth?

You might be remortgaging too early if your property value has dropped. This can happen at any time, lowering your equity and meaning that you owe more than your home is now worth. While house prices have generally been rising for the last eight years, 2020 has seen the first drop in prices in a long time. Plus, individual factors could impact the cost of your home.

The wider market may go back to growth, but if you live in an area where new commercial properties are being built, or you are suddenly in a flood risk whereas previously you weren't, you could see your home value lowering.

If you remortgage when your home's value has dropped, there's a good chance that you'll be raising your debt even higher. That's not what you need when you're already paying back more than the value of your home. Instead of remortgaging in this situation, simply stay on top of your payments.

Ideally, your property value will increase once again, but if it doesn't at least, you've avoided extra fees and even more debt.

Impact of Your Credit Rating

The mortgage deals you're offered are going to be based on your credit file and your credit score. Your credit score fluctuates, influenced by all of the financial transactions you make. You might be remortgaging too early if your credit score isn't as high as it could possibly be.

One financial misstep can have an impact on your credit file, making borrowing so much more expensive.

If you know that your credit score is usually better, ride out a temporary blip. Remortgaging when your credit score is low could make your mortgage much more expensive. Even waiting a few months can make a big difference, so it's important you're not tempted to remortgage too early whilst the interest rates you're offered will be higher. 

Make sure you're also checking your credit score and, if you notice any discrepancies, you investigate them and get them removed from your file to ensure it is accurate and not impacting you negatively.

Remortgaging Affordability Levels

Like your credit score, your ability to afford a new mortgage is likely to rise and fall. If you're due to get a pay rise or promotion very soon, then you could fall victim to the dangers of remortgaging too early. Don't be tempted to try to remortgage on your current lower salary – you're likely to be seen as more of a risk, and then rejected or charged higher interest rates.

If you know that you'll soon be earning more money, wait a little while before remortgaging. Lenders will check your income and expenditure, so you'll want to show your budget at its best. You may need to demonstrate a series of payslips at your new salary before it is recognised.

Equity Levels

Perhaps the most significant factor in remortgaging too early, your equity level is something you’ll need to be aware of. If you try to remortgage when you haven’t cleared much debt, you’re unlikely to get better rates.

You’re unlikely to find a good mortgage deal if you need a loan to cover more than 90% of your property’s value. By all means, look around, but don’t be surprised if remortgaging will work out more expensive.

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Checking You’re Ready to Remortgage

Remortgaging your property is a big commitment, with a process that can take several weeks. If you’re not ready to remortgage, starting the process can be a big and costly mistake to make. You’ll need to be sure you’re not remortgaging too early. Be confident you’re getting the best possible remortgaging deals.

There are few worse feelings than starting the process, then realising that if you’d waited longer, you’d have been in a better situation. If remortgaging won’t provide clear financial benefits, don’t make a move just because you can.

The Right Time to Remortgage

Situations change, so there’s no one time that’s exactly right for you to remortgage. Deciding when to remortgage often involves a delicate balancing act, evaluating all of the potential risks and benefits that might impact your financial situation.

You might decide the time is right if you want to move to a fixed rate, increasing your financial security in times of economic uncertainty. You may choose to remortgage if you’re moving onto your lender’s standard variable rate and know that you’ll find better deals elsewhere.

You could choose to remortgage because you’re unhappy with the service that your lender is providing. Only you know your motivations for remortgaging, though you’ll want to be aware of potential risks and penalties applied to this important decision.

Dangers of Remortgaging Too Early

The dangers of remortgaging too early can include finding that you can’t get a better rate elsewhere because your own circumstances have changed. Other dangers might include falling property values and changes in equity levels.

For most people, the biggest problem with remortgaging too early is the risk of early repayment charges. You’re likely to find that the costs of remortgaging make the benefits so much less worthwhile. Before you choose to remortgage, calculate how much you’d save and whether savings are wiped out by lender’s fees.

Though very few people stick to one mortgage from the day they first move into their home, remortgaging is always a risk for any borrower to take. If you get your timing right, you could decrease your payments and clear your mortgage much earlier.

If you get your timing wrong, remortgaging too early could be a terrible financial decision. Even a few months can make a big difference, so don’t be tempted to rush into remortgaging just because you’re worried about missed opportunities.

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Money Savings Advice Author Len Burgess

Len Burgess

Len Burgess is a professional financial writer who over the last five years has written hundreds of articles for all financial sectors. Len founded Money Savings Advice with the aim of helping consumers navigate their way around the financial world by providing easy to understand financial information and matching consumers with the best financial advisor based on their personal information.

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