When running a business, any business, profit and loss is a key driver. Being a landlord, no matter if you have one property or a large portfolio is a business and every landlord is looking to make at least some profit. By far the biggest outgoing for the majority of landlords is the mortgage payments on the property they are renting out and keeping on top of mortgage rates and re-mortgaging at the right time to keep the monthly mortgage repayments as low as possible is a sound business practice. The question, though is when is the right time to re-mortgage? Is it always best to leave it to the end of any fixed term on the mortgage to avoid paying potential early redemption penalties or does it make sense to re-mortgage at other times? Let’s cover some basics first.
What is re-mortgaging?
Quite simply re-mortgaging is replacing an existing in place mortgage with another one, either with the same lender or a new lender.
Why re-mortgage?
There are several reasons to re-mortgage, the first one simply being to get a better deal. Quite often landlords will opt for fixed rate mortgages for a specified period of time. This helps with budgeting as the monthly payments don’t change based on rises and falls in interest rates. At the end of the fixed period the mortgage will default to the lender’s standard variable rate, which is almost always higher than the fixed rate. Moving mortgage will allow landlords to keep their mortgage payments affordable. A second reason to re-mortgage is to release equity from the property that they have to allow them to perhaps buy another property or to release capital for improvements or repairs.
When is the best time to re-mortgage?
Quite often landlords will only look to re-mortgage at the end of a fixed term. Mostly this is because there are early redemption penalties that need to be paid to the lender for ending a fixed term mortgage early. Sometimes landlords just don’t want to deal with the perceived administrative hassle of re-mortgaging so just stay with the same lender. Some landlords simply do not know that, despite the penalties, they can re-mortgage at any time, even with a fixed rate, fixed term mortgage. Sometimes, landlords will look at the mortgage market decide that rates are not preferential and stay with the mortgage they have as the rate they have is lower.
Before deciding to remortgage, it is always a wise move to consult a qualified financial or mortgage advisor, but here are some thoughts on when it is best to remortgage.
- Landlords should really keep an eye on the mortgage markets at all times. If interest rates are going down, despite potential early redemption fees, it might make sense in the long term to remortgage when the rates drop below your current fixed rate. The savings can add up to tens of thousands over the period of the mortgage. Clearly there needs to be an analysis of the savings against the penalties, but if these stack up then re-mortgaging in the fixed term makes sense
- Interest rates at the moment are rising rapidly and this can put people off re-mortgaging as the rates are higher than they are currently paying. What, though if the predictions from the Bank of England are that interest rates will continue to rise into next year and beyond? It could be that you save some money now, but when you come to re-mortgage the interest rates are even higher. Although no-one has a crystal ball, it could be sensible to re-mortgage as rates are on the rise rather than when they peak. This is a calculated risk and not guaranteed to succeed but it is worth considering.
- Early redemption fees are calculated on a sliding scale and the closer you are to your mortgage term being up, the less the fees will be. It always pays dividends to understand what the fees will be month on month to calculate the cost/benefit of moving
Clearly it always makes sense to seek professional advice when looking to re-mortgage but just remember that in a period, like now, where interest rates are on the up, taking out a new mortgage with higher payments than you currently have can pay back in the longer term if interest rates have not spiked.
In summary, landlords should really be open to re-mortgaging at any time as long as it makes good financial sense for their circumstances. Simply waiting for fixed terms to end and then looking could mean losing thousands of pounds.
