Life Changes That Should Trigger a Mortgage Review
For most people, a mortgage is the biggest debt they will ever take on, and it will have a significant impact on their overall financial position for many years after completion day. Certain big life events can be an important chance to review the details of your mortgage, and getting married is one of them.
It is worth reviewing your mortgage details every so often, to decide whether the deal is still right for you and identify any opportunities to save money or release equity. You might consider remortgaging to get a better deal or raise funds for renovations. Changes in your income, expenditure, assets, liabilities or long-term plans, justifies reassessing your mortgage arrangements so when you marry, it is definitely time for a review.
Getting married
Getting married is one of the biggest life changes, and is always an opportunity to review your mortgage deal or other financial matters, particularly if you will also be moving in together for the first time. Even if you were already living together, your financial profile and legal position will change following your wedding, and combining your finances changes risk exposure and financial priorities. This often justifies remortgaging, or at least reviewing your existing mortgage details to make sure your existing deal remains suitable.
A review of your finances at this stage can address all of the following possible needs:
1 Adding your spouse to the mortgage or property title. Marriage does not automatically place both spouses on the mortgage or title, and a formal transfer is required if you wish to own the property jointly. As such, if the property is in one name and you plan to own it jointly, you may need to remortgage. Some lenders allow a transfer of equity without a full remortgage, but affordability will be reassessed using joint income and outgoings. If you have held the mortgage for a long time, the value of the property may have increased, which in turn could have reduced the LTV ratio, which may enable you to secure a better deal.
2 Revise your repayment strategy to account for joint income. If both incomes are stable, you may qualify for a more competitive rate or a shorter term. A lower LTV can also improve pricing if your property has increased in value over time.
3 Borrowing more to make renovations. Marriage often comes with plans for renovation, moving house, or consolidating finances. A remortgage can release equity if the loan-to-value supports it, and enable you to make changes that will support the growth of your family over the long term. If you anticipate moving in the short term, the portability of your current deal should be considered.
4 Update life insurance or critical illness cover linked to the mortgage. Some mortgage policies come with certain types of life insurance and legal cover included. Getting married will mean that your needs in this regard will change. As well as potentially securing a better deal by remortgaging when you get married, you can also renew your insurance policies to account for the big changes in your life.
5 Identify if a current deal is ending soon. If you are approaching the end of a fixed or discounted period, the start of your marriage is a practical time to review and switch products. By taking this opportunity to review your financial position, you can find out when your fixed rate ends and prepare. Otherwise, you may be automatically moved to a much higher rate.
While all of these are benefits, it will not be advisable in all cases to remortgage or change your deal. For example, if you are tied into a fixed rate with early repayment charges, exiting early by remortgaging can result in significant fees that may outweigh any savings. Similarly, if your current mortgage terms are favourable and you already enjoy a competitive rate, there may be no financial benefit in changing.
It will also depend on the nature of your relationship. If you are keeping finances separate and not altering property ownership, a remortgage may be unnecessary from this perspective. It can help to speak to an experienced remortgage solicitor for advice on whether it is necessary to remortgage in your position, the options available and the impact of your new legal position once you are married.
A change in employment or income
A new job, promotion, pay rise, redundancy or move to self-employment will affect your borrowing capacity, and potentially your ability to make your ongoing repayments. An increase in income may allow overpayments, a shorter term or a move to a more competitive product, which can allow for savings over the long term. On the other hand, a reduction in income may require you to restructure the deal or switch to a new mortgage product.
The end of a fixed or introductory rate
When a fixed, tracker or discounted rate expires, borrowers are often moved to a lender’s standard variable rate, which can be considerably higher. If your existing mortgage rate looks set to increase, this is a great opportunity to review your options before your current rate expires and reduce overall interest costs. Remortgaging or moving house are key ways to avoid the increase.
If the property value has risen during your ownership, the loan-to-value (LTV) ratio may have improved. LTV is the percentage of a property’s value that is funded by borrowing. It is calculated by dividing the mortgage amount by the property’s value.
A lower LTV provides access to more competitive interest rates on remortgage. This means that even if your existing mortgage deal is not set to expire, there may be advantages to renewing it or exploring other options.
Having children
Whether you are married or not, having a child is a good reason to check the details of your mortgage. While this is always a very busy time, you should not neglect the financial impact of things like parental leave, childcare costs and reduced working hours on your disposable income.
Reviewing your mortgage terms can help you to determine whether you need to reduce monthly payments temporarily, or highlight gaps in your financial security. If you are looking to move house, or release equity to expand your property to accommodate your growing family, a mortgage review can highlight any possibilities in this regard.
In practical terms, a mortgage review is a good idea whenever there is a material shift in your income, household structure, financial objectives or market conditions. However, even when no significant life events occur, regular reviews can highlight savings opportunities and reduce your long-term borrowing costs.
See more information here Can you afford your first home?
