Remortgaging your property is a major milestone for many homeowners. You may choose to remortgage for many reasons, such as coming to the end of a fixed-rate deal, releasing equity tied up in your property, or moving house to accommodate a growing family.
While managing monthly payments and interest rates is a significant focus of the remortgaging process, one crucial step that many forget is reviewing their overall financial safety net at the same time.
Updating your mortgage without reviewing your personal cover could leave significant gaps in your financial plan. Here are two key reasons why.
1. You may need to update your life insurance and critical illness cover to reflect the outstanding balance on your new mortgage
Life insurance and critical illness cover play a key role in your greater financial plan. These policies aim to protect you from unexpected events that might prevent you from reaching your long-term financial aims.
Should you pass away or become seriously ill, you or your family could use the payout from these policies to clear your outstanding mortgage balance. This ensures your family can remain in the home without the strain of keeping up with payments on a single income or no income at all.
However, if you remortgage and your outstanding mortgage balance changes, your cover may no longer be adequate. For example, if you move to a larger property and take on a bigger mortgage, your existing policy could fall short.
Even if you remain in the same property, interest rate hikes can affect decreasing term life cover policies.
These policies are designed so that the payout gradually reduces over time. This decrease happens based on the expected reduction in your mortgage over the course of its life, but does not account for external variables.
For example, if you were to remortgage onto a higher interest rate, your mortgage balance may not go down at the same rate as your insurance cover. This mismatch could create a cover gap, where your payout would not match the outstanding balance.
So, if you were to pass away without reviewing your protection, the lump sum payout may not cover the remaining mortgage as you would expect. This could leave your loved ones in a vulnerable financial position.
Reviewing your protection when you remortgage ensures it is still appropriate for your individual circumstances and the value of your mortgage.
2. Your emergency fund and income protection may no longer be suitable if your mortgage costs have changed
Interest rates have fluctuated significantly over the last few years, and many homeowners could face higher monthly payments when their fixed-rate period ends.
Indeed, according to an analysis by MoneyAge, average new mortgage rates for August 2026 rose to 5.59% from 5.47%, reversing rate cuts from July.
Calculations from MoneyHelper demonstrate that, for a £300,000 mortgage with 20 years left on the term, this equates to approximately £20 each month.
However, if you took out a five-year fixed-term mortgage in 2021, that number could look vastly different because of the rate hikes we have seen in the last five years.
Let us assume the following:
- In 2021, you took out a 25-year mortgage for £400,000 at an interest rate of 2.3% (fixed for five years), which Mortgageable states was the average for that year.
- According to MoneyHelper, your monthly payments could have been approximately £1,750.
- By year five, you could have an outstanding balance of £337,255.
- If you were to then remortgage at 2026 rates with the same term, your monthly payments could increase to £2,089.21.
The BBC further highlights that more than five million homeowners can expect increases to their monthly mortgage repayments by 2028.
When your monthly housing costs increase by hundreds of pounds, your wider financial plan needs to adjust alongside this change.
The income protection plan you took out at the start of your mortgage may no longer be enough to cover increased costs should you become unable to work due to illness or injury. In the same vein, you may need to bolster your emergency fund to account for increases in your expenditure.
Boosting your emergency savings and updating your income protection ensures you can meet higher monthly mortgage commitments, even if life takes an unexpected turn.
We can support you in assessing your financial safety net
Reviewing your personal protection alongside a remortgage can be simple with the right support. At DBL Asset Management, we can help you evaluate your entire protection structure to ensure your home, family, and long-term financial ambitions remain fully protected.
If you would like assistance reviewing your financial safety net or wish to align your cover with a recent remortgage, we are here to help.
Get in touch by emailing enquiries@dbl-am.com or calling 01625 529499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Using equity in your home will affect the amount you are able to leave as an inheritance. Any means-tested state benefits (both current and future) may be affected by any equity released. This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.
Note that life insurance and financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.