Life Changes That Should Trigger a Mortgage Review
A mortgage review is a great opportunity to determine whether your current mortgage product meets your needs. Mortgage conditions shift rapidly in response to interest rate volatility and the broader economic climate, and your own financial position will change too, both when significant life events occur and simply as a result of paying off your mortgage over time.
For many homeowners, a mortgage is their most significant financial commitment, yet many people fail to review their position at key stages to make sure that their borrowing remains aligned with their financial position and long-term wealth goals. Given that an average mortgage can last for anywhere from 25 to 35 years, it is clear that your circumstances will evolve a lot during this time. Failing to conduct a mortgage review can lead to missed opportunities for a better deal, lower interest rate or more efficient repayment structure.
At the same time, key life events can provide a suitable trigger for you to reexamine your mortgage and determine whether it still works for you. Here, the experienced remortgage solicitors at JMW outline when you should review your mortgage and the benefits you can potentially expect by changing your deal.
The expiry of your fixed rate
The end of a fixed-rate term is the most critical trigger for a review. If you have chosen a fixed rate to enjoy more certainty over monthly outgoings, you should understand that once the fixed period expires (after two, five or ten years) you will usually be moved to your lender’s Standard Variable Rate (SVR).
The SVR will usually offer a much higher interest rate than the initial fixed term. For that reason, transitioning to an SVR often creates significant and unnecessary interest overheads. Not only should you choose a new mortgage product before this happens, but you should start the process of reviewing options early. Many mortgage offers last for up to six months, and by reviewing options early, you can secure competitive rates and avoid the costs of a switch.
A review also allows for a reassessment of your loan-to-value (LTV) ratio. If your property value has increased, your LTV will have improved and you may access better rates as a result. In fact, any improvements to your credit score or overall financial position may deliver savings through a better interest rate, lower monthly payments or shorter mortgage term.
Career advancement
Employment status dictates how lenders assess income and debt capacity. Any significant shifts in your career, such as promotions, substantial pay rises or transitioning to self-employment, warrant an immediate review.
Increased income offers opportunities to make overpayments or shorten the mortgage term, which will reduce the total interest you pay. However, lenders typically cap how much you can overpay each year, and choosing a new deal with different mortgage terms is often the best way to completely change the length or payment structure of your mortgage.
If you wish to remortgage after retirement, bear in mind that lenders require specific evidence of consistent earnings or retirement income. When shifting toward later-life financial planning, your income profile remains the central component of any assessment, and it is important to work with a financial advisor or mortgage advisor to determine which options will work best for you.
Marriage or cohabitation
Events such as marriage or cohabitation often require a reassessment of mortgage structures. Combining incomes may allow for increased borrowing or a move up the housing ladder. If one partner wishes to become a co-owner of the other’s property, you will need the mortgage lender’s consent. Applying together for a new mortgage may make more sense in some cases, particularly if your financial situation has changed as a result.
Conversely, separation or divorce often requires a transfer of equity or full refinancing. These changes alter your financial profile, and may justify pursuing a remortgage to maintain long-term stability.
Growing your family
A growing family impacts disposable income and long-term financial planning. Parental leave and childcare costs create different affordability profiles than those present at the start of a mortgage. A review during this stage of your life may enable you to better manage these outgoings and confirm that your mortgage remains a sustainable component of your household budget.
You may also require additional space, and remortgaging can allow you to release equity from your property to cover the costs of an extension or renovation. Consolidating debt or borrowing against property is frequently more cost-effective than high-interest personal loans. Alternatively, the opportunity to adjust monthly payments during this period can support your new requirements.
If you make major renovations, these can significantly alter property value in a way that can improve your financial position. Adding an extension or converting a loft improves your LTV ratio, which will potentially unlock access to more competitive rates.
Reviewing your mortgage
You can explore new mortgage options and search for a better deal at any time, but doing so during a fixed term will expose you to early repayment charges imposed by your current lender. Even so, the overall deal may be more cost-effective than remaining on your current fixed term rate. You should consider the impact of additional interest over time compared to the one-off costs of paying off the mortgage early.
Regular reviews allow you to move away from high-interest SVRs, access housing wealth for renovations, and benefit from advice that considers your full financial profile, which is particularly valuable when your circumstances have changed.
Disclaimer: This article is for informational uses. Always seek advice from a qualified professional.
Top photo by Sasun Bughdaryan on Unsplash
