Remortgages: When is the right time to take out a loan?

What is the purpose of remortgaging?

It's worth reiterating the purposes for wanting to remortgage and questioning whether they remain a valid reason right now, or identifying whether the decision should be put off for the time being:

• Availability of different and more appropriate mortgage products - a better rate or payment terms on a different mortgage product, which makes repayments more beneficial and manageable. 
• Borrowing money for specific projects - taking out some of the equity accrued in your home to pay for a variety of projects. 

• Changes in circumstances - marital status, financial position, etc. There are many reasons why your change of circumstances might inform your decision to remortgage.
• Buying a second property - perhaps to get into the rental business, or to supplement your child's step up on the property ladder.

Why would you not want to remortgage?

Getting hold of some money to embark on some of these processes might seem like a great idea, but there are some considerations, which, according to Martin Lewis at Money Saving Expert, you need to consider before contacting a lender to get your remortgage plans moving.

These are:

• Small mortgage debt - if you are looking to switch to a different lender or product because they are offering terms that look to be better than those you are currently operating, take a pause. If the amount left on your current mortgage is low (Money Saving Expert suggests this figure might be below any figure £50,000), the saving you make is likely to be negligible, particularly when you factor in the associated fees.

• Early repayment charge - look at the terms of your loan agreement to see what the early repayment charge is on your current loan. Some lenders set this quite high so the attraction of a remortgage will diminish the higher this is.

• Change of circumstances - although this might be a driver to seek a remortgage, your lender is legally obliged to seek evidence of your income to ensure you are still in a position to furnish the repayments on their loan. Talk to your lender to see what they can offer to help you if you're likely to be struggling.

• Value of your home changes - as with all things financial, while in the good times, the value goes up, it's just as true that pressure exerted from the global, national and local economies might reduce the value of your home, which means that the remortgage loan rates you get for your home will be impeded, making the process not worth pursuing until your home's value has at least reached equilibrium.

• Little equity - it may simply be the case that your home has very little equity in it (the value of the home minus the remainder of the current mortgage loan).

• Credit problems - your credit rating might have dropped since you took out the original mortgage loan, which means you are possibly not in a position to take out another one in the form of a remortgage.

Source: Money Saving Expert

As in any situation where you are considering taking out a loan, whether it's a mortgage, equity release, remortgage, hire purchase-style or a standard loan, you need to take time to look at the affordability - now and in the long term.

And, if you are struggling with debt, advice is available (from governmental agencies, Citizens Adviceand organisations such as Money Saving Expert). If you are at all worried, talk to your current lender and they will advise you on how they can help.

And, if you are in a strong position to take out a remortgage loan, consider all the questions raised here and talk to your prospective lender about the options. Naturally, they will want to sell you their products, but equally they are in the business of protecting themselves, too, so will not automatically grant you a loan.

You'll also need to consider the additional costs, such as employing a conveyancing solicitor to carry out the legal work for you. This will only be required if you are changing lender perhaps to take up a more advantageous loan rate. It's a necessary step to take to cover everything in the change of deeds ownership from one lender to the next.