Remortgaging simply means changing your mortgage without changing your home. Sometimes you can switch your mortgage to a different product with your existing lender - known as a product transfer, or you can select another mortgage product with an entirely different lender, which is treated as a full remortgage.
There are a wide variety of reasons that people may choose to remortgage their home, but most commonly, they want to save money, or borrow more money. Below we’ll look at some of the typical circumstances where people find remortgaging to be a helpful option:
You can make both short term and longer term savings on your mortgage by reducing the interest rate, mortgage type or term length:
If you have fallen onto your lender’s SVR (standard variable rate) then the chances are, you may be paying over the odds. At this point, people often look at the best remortgage deals available to see if they could save on their existing rate
If you’ve gained substantial equity in your home, the LTV (loan to value) ratio of your borrowing will have reduced. This essentially means that the percentage of your borrowing has fallen compared to the cost of the property, and occurs gradually as you repay your loan, as well as when your property value increases. As with all mortgages, the best remortgage rates tend to be available to those with the lowest LTV
If you’re currently on a variable rate deal and there are increases in the Bank of England base rate, you may feel the need for a little more stability with your repayments. A fixed-rate mortgage can give you peace of mind, as unlike variable rate mortgages, the interest rate payable cannot increase until the fixed-rate period is over. Whilst they often start out more costly than variable rate deals, if you’ve seen your rates rise significantly, it should be possible to remortgage onto a more competitive fixed deal
One way to save money on your mortgage in the long term is to repay it more quickly, as this will reduce the total amount of interest you pay over the whole mortgage term. Some mortgages allow for overpayment, but you may want to remortgage to a more flexible deal that allows for larger overpayments, or an offset mortgage to enable you to pay your mortgage off sooner
Some people remortgage to increase their borrowing, which can be helpful in a wide variety of circumstances:
To carry out home improvements
To pay for the costs of education or help get family members onto the property ladder
To consolidate debts
For large purchases, such as a car or holiday
It’s worth taking into consideration that this is not always the cheapest way to borrow money, as although mortgage interest rates can be lower than those on a personal loan, you will be paying interest on that additional balance for the entire length of your remaining mortgage term.
There are a number of situations where remortgaging could be the right option for you, but timing is the key to maximising the benefits of your remortgage, whatever your reasons. The best time to remortgage will depend on your individual circumstances.
You’re coming to the end of your current fixed-rate or introductory deal period - you can set up a remortgage as far as six months in advance of the end date!
You see a much better rate - bear in mind that you will need to look at how much any ERCs (early repayment charges) will cost you to leave your existing deal, as they could outweigh the benefits of the better rate
You’re on a variable rate deal and the Bank of England looks like it will rise soon - remortgaging to avoid increased interest rates may be possible, so long as your ERCs won’t end up costing you more
Your home has increased in value dramatically, reducing your LTV
Your current lender doesn’t offer the flexibility you would like, such as offsetting or the ability to overpay
You’re not tied into a deal that has ERCs to pay so can leave at any time
If there are no rates available that are better than your existing one, in which case it’s probably not worth paying the fees involved with remortgaging, especially if you also have ERCs to pay
If you’re only a short way into a fairly long fixed period. The ERCs payable generally tend to reduce over time, but the further you are from the end of your fixed or introductory rate, the higher they are likely to be, meaning it’s unlikely you will benefit from remortgaging at this point in time
Your property value has fallen, causing your LTV to increase, or even worse, if you’re in negative equity - where you owe more than the current value of your home. In the case of the latter, you probably wouldn’t be able to secure a remortgage anyway
If you haven’t gained much equity in your home yet, as your property value hasn’t increased and you haven’t repaid much of the original loan. Even if your scenario isn’t worse than when you took the mortgage out, lenders will usually have a minimum equity requirement to remortgage, so it will be more difficult if you’ve not yet reached that threshold
Your financial circumstances have changed for the worse, meaning that it would be difficult to qualify for the affordability of a remortgage. You may still be able to do a product transfer with your existing lender, however, so long as you don’t want to borrow more
Remortgaging is essentially taking out another mortgage, so most of the fees involved in taking out a mortgage will still be payable. This includes arrangement fees and legal fees, as well as the potential for exit fees and ERCs on your existing mortgage.
Some lenders offer various incentives, such as low fee or fee free remortgages, however, it’s really important to look at the full cost of remortgaging and how much you would save, compared to staying on your existing deal.
If you’re looking to remortgage with another lender, the same eligibility requirements will apply as when you took out your original mortgage:
Loan to Value - this will depend on the equity you have in your home - however, some lenders allow you top up a shortfall in equity with a cash deposit
If you’re concerned that you might not meet the criteria of a new lender, it may still be possible to get a product transfer with your existing lender without the need to have your finances and credit status reassessed. That said, if you need to borrow more money, it's unlikely your lender will do so without re-assessing you even with a product transfer.
Lenders have a maximum LTV that they are willing to offer in any given scenario, depending on how well you meet the other lending criteria and how much you need to borrow.
As lower LTV borrowing is less of a risk to the lender, the interest rates offered tend to be more competitive, the lower the LTV of your borrowing.
The LTV, or loan to value, is the percentage of the total cost of the property that you need to borrow. Find out the total outstanding value of your mortgage, your property’s current value and then divide your outstanding mortgage balance by your property’s value:
You have £100,000 left to pay on your mortgage
Your property is worth £200,000
Divide £100,000 by £200,000
= 0.50.5 x 100 = 50 (or 50% LTV)
When you remortgage, the LTV will depend on how much of the original loan you have repaid, whether your property has increased in value, and whether you need to borrow more money or are simply remortgaging for a better interest rate.
Remortgage rates vary from one deal to the next and one lender to another. The best remortgage rates will be offered to those with the lowest LTV (so the greatest amount of equity in their home).
This means that you are likely to find more favourable rates if you are simply changing deals to save money, as when you borrow more, you will increase your LTV.
It’s difficult to compare remortgage rates online, as the mortgage market is highly volatile, so rates change very quickly - here is an overview of today's mortgage rates. A whole of market broker will be up to date with all the latest and best remortgage deals available, as they have direct access to lenders rates, as well as some that won’t be available to the general public.
It’s a good idea to make sure that you apply at a time where your circumstances are likely to align with lender criteria. For example, if you’ve recently lost your job, or property prices have fallen and your LTV has gone up as a result, it may be better to hold off, if possible.
Like any other mortgage application, you’re more likely to be approved for a remortgage when your financial circumstances allow you to meet the affordability requirements, your credit file is in good shape, and you have a low debt to income ratio. It will also help if you have a good level of equity in your home, and/or can offer additional security in the form of a deposit or high value asset.
Historically older borrowers have had a harder time remortgaging, especially if they are nearing retirement age, due to the maximum age limits imposed by many lenders.
However, in recent years there has been a noticeable increase in flexibility in this area, with some lenders extending their maximum age of borrower and maximum age by which the mortgage needs to be repaid.
When nearing retirement age, many people reassess their finances, and a large part of this is likely to be looking at their remaining mortgage balance, and how they can live more comfortably in their later years.
People in these circumstances may consider more specialist products, such as:
Remortgaging onto a retirement interest-only mortgage RIO - often a helpful option for homeowners likely to fall short of repaying the final lump sum balance on an interest-only mortgage
Remortgage onto an equity release product - always take qualified financial advice from an equity release specialist before considering this type of remortgage
Claire Flynn, Senior Content Editor - Mortgages
If your current deal is due to expire within the next six months, you should start thinking about remortgaging now in order to lock in a new rate. Speak to a mortgage broker who can look at the whole of the market to find the best deal for you and your circumstances. ”
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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