What is remortgaging?
Remortgaging is the process of repaying an existing mortgage debt with a new mortgage. This is typically done to save money with a lower interest rate, or to raise money by borrowing against equity.
Why do people remortgage?
There are many good reasons to look into remortgaging. The two most popular reasons why people choose to remortgage are:
- To save money- in order to lower monthly repayments or benefit from lower interest rates. More than half of all borrowers in the UK are currently paying more than they need to on their mortgage.
- To raise money - to release some of the equity in your home. This could be useful if you wanted to consolidate debts or release money for making home improvements (and adding value to your property). However, there is also the possibility of doing this with your current mortgage lender, with the added benefit of avoiding any penalty fees that come with switching to a new lender.
Many people who already have a mortgage tend to look at remortgage deals and monitor the remortgage market to see if they can get a better deal than they currently have. After the initial fixed rate, your mortgage may revert to a higher rate of interest, meaning you will have to pay more each month. By remortgaging, homeowners may be able to switch to a better deal with a different mortgage provider.
Who can remortgage?
Anyone who has an existing mortgage can look into remortgaging - provided that they meet the criteria set by their potential new mortgage lender. Remortgaging might be particularly important if you’ve come to the end of a fixed-rate period, or your discounted deal is coming to an end. While you can stay with your existing mortgage provider, you will probably be put on their standard variable rate (SVR) which may not be the best deal around. In many cases, remortgaging can make a big impact on your monthly outgoings - for example, if you managed to negotiate down a £75,000, 15 year repayment mortgage from 5.5% to 4% you could save £58 a month.
When is a good time to remortgage?
When the deal you’re currently on comes to an end you may have to make much higher repayments. It’s therefore best to start looking at other offers just before your deal comes to an end, so that you can make a smooth transition to a new deal. However, it’s good to always to keep an eye on the market to make sure you get the best remortgage deals. You may need to watch out for a mortgage exit fee, which is a penalty for leaving your current mortgage deal early. Sometimes a remortgaging deal can make up for the early exit penalty, but it’s worth calculating how much you would have to pay over the remainder of your mortgage if you stay in your current deal versus switching to a remortgage deal (see below ‘Will remortgaging cost me anything?’).
How long does remortgaging take?
Remortgaging usually takes about a month, as you complete all the paperwork and have a valuation of your home conducted. When the process is complete you’ll be notified with a completion statement from your lender.
Will remortgaging cost me anything in fees?
One of the most important things to check if you’re thinking about remortgaging is what it will cost you to change lenders. If you’re still locked in to your existing mortgage, you’ll probably have to pay a charge which could amount to a few months’ interest. This is important to check, as it could negate any savings you make by switching to a cheaper mortgage. Many mortgage companies also charge a standard fee for closing down a mortgage. The good news is that many mortgage lenders have now reduced the amounts they charge. You might also have to pay for legal fees and a valuation. Some companies, as an added incentive, will refund this money or offer the service for free if you switch your mortgage to them. You need to watch out for the mortgage arrangement fee too – many of the cheapest deals carry mortgage fees of over £1,000, which makes them less attractive to those who have smaller mortgages. Advisers and mortgage brokers may also add a fee for their services in helping you secure a remortgage deal.
How do I find the best remortgage deals?
To get the best mortgage rates, when you’re looking to remortgage, it’s always wise to have an idea of:
- the estimated value of your home;
- the percentage of the value of the property you want to borrow (the LTV ratio);
- your annual income and the income of anyone else who will be named on the mortgage;
It is also useful to get a ‘redemption statement’ from your existing lender, which will tell you exactly how much you owe. These factors are important to figure out what you need to remortgage for: saving money or releasing equity. Also, you can compare the mortgage market better by assessing the costs you can afford and thus get an idea of which deal will help you achieve your personal finance goals. You’ll also need to choose which type of mortgage you would like to compare:
- Fixed rate mortgages - with a fixed-rate mortgage the interest rate is fixed for a set period of time, usually between 2 and 5 years. Fixed rate mortgages are good if you want the security of knowing what your monthly repayments will be, but homeowners will not benefit from any potential drop in interest rates.
- Tracker mortgages - with a tracker mortgage your mortgage rate is set at a percentage above the Bank of England’s base rate or your lender’s standard variable rate, so if interest rates go up or down your mortgage repayments will too.
- Offset mortgages - with an offset mortgage, your mortgage and savings account are combined, and the money you have in your savings account is counted as a temporary overpayment towards your mortgage, which could save you thousands in interest. As with a standard mortgage, you can get discounted, fixed and tracker offset mortgages.
How to find the best mortgage calculator
Using a mortgage calculator can make it easy to compare deals, as they can give you how much your current rate will cost you, and how much you stand to save. There are many mortgage calculators available online, giving a wide range of information, our one above works out your LTV and compares available deals giving you available rates and monthly repayments on the market.