If you already own a property and have been steadily making repayments, one of the questions that will inevitably come up is whether or not you should remortgage. In the UK, fixed-rate mortgage terms tend to last two, three, or even five years. Occasionally, you’ll find a 10 year mortgage offer, though these are relatively rare.

These short periods don’t mean you need to pay off your entire home at the end of the period. Just that your fixed interest rate agreement will end. After it ends you can do a whole number of things, like remortgage all the way to completely paying your mortgage off.

For most, the fixed rate period is short enough that they’re happy to wait until their agreement ends to make any big decisions, but that’s not always the case. If you find yourself asking, “can I remortgage early?” then this guide is for you.

Can you remortgage early?

Yes, you can remortgage early. The real question, however, is whether it’s worthwhile for you. This is because it can be very costly to remortgage before your fixed rate term ends, thanks to exit fees and early repayment charges.

If those fines are too much for you, then when do you remortgage? At the end of your term. Once it’s up, you’ll be put on the standard variable rate (SVR). You can then negotiate a new deal with your lender, switch lenders, or pay off your mortgage without penalty.

In some cases, however, the penalties are worth incurring.

When should you remortgage?

While remortgaging early isn’t generally a worthwhile option for most homeowners, there are a few times when to remortgage before your fixed rate term ends that make sense. So, when should you remortgage early? These are a few of the top reasons why you should consider it:

·         Drop in interest rates

In rare situations, the interest rates may plummet compared to what you are paying now. If you are on a longer fixed rate agreement at 5.5%, for example, and interest rates drop to 2.5%, then the exit fees and early repayment charges may be significantly less than what you’d save by switching.

You must compare costs over the period of your agreement, however. Unless the savings you’d get from switching interest rates are less than the fine you’d pay, there’s no reason to remortgage.

·         Change in financial situation

One of the reasons why you might have a significant drop in interest rates isn’t down to the Bank of England or current averages, but your own financial situation.

If you initially took on a bad credit mortgage, for example, and have significantly increased your credit score and history, then you may be able to apply for a more favourable term. Once again, only remortgage if the interest savings outweigh the fines.

·         You want to move

In a few instances, you may need to remortgage if you move. Most lenders, however, do let you move mortgages to your new property. You can also take out a second mortgage instead to cover costs if your existing mortgage doesn’t cover your new property purchase.

·         Home value increase

If your home has drastically increased in value then your value to loan will drop. This means that the loan you have left is less than the value of your home. A lower LTV usually comes with more favourable interest rates. If you bought a property in a good area but needed a lot of renovation work and have completed the work, remortgaging can help you get better rates.

·         You need equity

Can you remortgage to pay off debt? Yes, in two ways. One, you can remortgage to get equity out of your home. Two, you can take out a new mortgage that consolidates all of your debts.

Penalties involved with remortgaging early

The reason why you need to be careful when remortgaging early is that there are fines.

·         Exit fees

If you break your contract early, there are often exit fees. These are often fees designed to cover the administrative costs necessary to do the paperwork. Exit fees include completion fees, which are usually between £50 and £200. Exit fees also include legal fees if a solicitor is needed, as well as valuation fees.

·         Early repayment charges

The bigger cost of remortgaging early is the early repayment charge. The exact amount depends on your mortgage agreement, but generally, it’s between 1 and 5% of your loan amount. This means if you have a £100,000 mortgage remaining, you will need to pay between £1000 to £5000.

Alternatives to remortgaging early

Before asking, “can I remortgage” to your lender, see if they can offer you an alternative instead.

·         Move your mortgage

If you need to move houses, then you may be able to move your mortgage instead. Most lenders let homeowners do this, especially if the property they buy is worth the same or less than your current one.

·         Briefly switch to an interest-only mortgage

If you want to remortgage to pay less because you need more money for something else (care, cost of living, legal fees, etc), then you may be able to switch to an interest-only mortgage. Many lenders let you switch temporarily to an interest-only mortgage for six months without any checks, thanks to the Mortgage Charter Scheme.

You pay only the interest on your loan during that period. Once the period ends, you will go back to your standard fixed-rate.

Final thoughts

Remortgaging early can be a great way to snap up a better mortgage deal, especially if your circumstances have changed. Before you opt out of your mortgage, however, you need to know your options, so have your trusted independent mortgage broker find you the loan options that are available to you.