Can You Remortgage During a Fixed Term?

A mortgage is a significant financial commitment, often spanning decades, where a borrower repays a loan used to purchase property. Many homeowners opt for a fixed-term mortgage, offering predictable monthly payments due to a consistent interest rate for a predetermined period. During this fixed term, circumstances can change, leading homeowners to consider remortgaging. This decision often arises from a desire to secure a more favorable interest rate, access equity, or consolidate debt.

Understanding Fixed-Term Mortgages and Remortgaging

A fixed-term mortgage provides a stable interest rate for a specific duration, typically two to ten years. This stability means the monthly principal and interest payment remains constant, offering budget certainty regardless of market interest rate fluctuations. Once the fixed term concludes, the mortgage typically reverts to a variable interest rate.

Remortgaging involves replacing an existing mortgage, often with a different financial institution. This process allows homeowners to secure a new interest rate, alter their mortgage term, or release equity. While remortgaging is possible during a fixed-term period, financial and procedural considerations accompany this decision. These factors must be evaluated to determine the benefit and feasibility of switching mortgage agreements before the fixed term expires.

Financial Implications of Early Remortgaging

A primary financial consideration when remortgaging before a fixed term concludes is the Early Repayment Charge (ERC). Lenders impose ERCs to compensate for lost interest income if a borrower repays or transfers their mortgage balance early. These charges are calculated as a percentage of the outstanding loan, often 1% to 5%, depending on the mortgage product and remaining fixed term. For example, a 2% ERC on a $200,000 outstanding balance would amount to a $4,000 charge.

ERC terms are outlined in the mortgage agreement, detailing when and how they apply. Some agreements might feature a tiered ERC structure, where the percentage decreases as the fixed term nears its end. For instance, an ERC might be 5% in the first year, dropping to 4% in the second, and so on, until it expires. Understanding these clauses is important because they directly impact the financial viability of an early remortgage.

Beyond the ERC, other fees are associated with remortgaging. A valuation fee is charged by the new lender to assess the property’s market value, ranging from a few hundred to over a thousand dollars, depending on property size and location. Legal fees, paid to solicitors or attorneys, cover conveyancing work and vary significantly, often between $500 and $1,500. Additionally, the new lender may charge an arrangement or product fee for setting up the new mortgage, which could be a flat fee (sometimes $995 or more) or a percentage of the loan.

The Remortgaging Process During a Fixed Term

Initiating a remortgage during a fixed term begins with research and comparison of available mortgage deals. Homeowners examine interest rates, terms, and associated fees to identify a product aligning with their financial goals. This step often involves consulting a mortgage broker, who can provide access to a wider range of products and tailored advice. Gathering necessary documentation, such as proof of income, identification, and existing mortgage statements, is an early part of this stage.

Once a suitable mortgage product is identified, the homeowner submits an application to the new lender. This application requires personal and financial information, allowing the lender to assess creditworthiness and affordability. Following the application, the new lender arranges a property valuation to ensure the property’s value supports the requested loan. The valuation report provides the lender with an independent assessment of the collateral.

Upon completion of the valuation and review of the application, the new lender issues a mortgage offer. Accepting this offer initiates the legal phase of the remortgage process. Solicitors or attorneys handle legal work, preparing and reviewing the new mortgage deed, arranging discharge of the existing mortgage, and managing fund transfer. This legal process ensures all regulatory requirements are met and the transaction is executed correctly.

The final step is completion, where new mortgage funds are released by the new lender to pay off the existing mortgage. This marks the end of the old mortgage agreement and the commencement of the new one. The homeowner then begins making payments to the new lender under the terms of the new agreement. This process typically takes several weeks to a few months, depending on case complexity and party efficiency.

Alternatives to Remortgaging

Rather than pursuing a full remortgage with a new lender, some homeowners may consider a product transfer with their current mortgage provider. A product transfer allows a borrower to switch to a different mortgage deal offered by their existing lender, often with a new fixed or variable interest rate. This option is appealing because it typically involves a simpler application process compared to a full remortgage, as the current lender already holds much of the borrower’s financial information.

A product transfer often avoids certain fees associated with a new mortgage, such as valuation or legal costs, since there is no change in property ownership or lender. However, an Early Repayment Charge (ERC) may still apply if the product transfer occurs before the end of the original fixed term. Terms regarding ERCs and any product transfer fees will be outlined in the existing mortgage agreement or the new product transfer offer from the current lender. This alternative offers a streamlined path for homeowners looking to adjust their mortgage terms without the extensive process of switching lenders.