Remortgaging is the process of securing a new mortgage deal to replace your current mortgage with either your current or a new home. There are a number of reasons why you might remortgage your home, from finding a better deal to releasing equity from your home. Read our remortgage guide to find out more and compare the best remortgage deals available.
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Remortgaging is the process of changing the current mortgage you have on property you own. You can remortgage with your current lender, or remortgage and move to a new lender.
But just because you will have already gone through the mortgage application process when you took out the original loan, it doesn't necessarily mean a remortgage will be easier to obtain. You will still have to submit a lot of paperwork, pass strict affordability checks and most likely use a conveyancing service, although staying with the same lender may make the process slightly easier.
One reason for remortgaging is that you want a cheaper deal: if you’re paying your lender’s standard variable rate (SVR) right now, switching to a fixed rate mortgage could save you thousands of pounds.
To work out your potential savings, you need to calculate what fees (if any) you will need to pay to exit your current mortgage and what fees you will be charged for taking out a new one.
To leave your current mortgage, there will likely be a flat exit fee of between £50 and £200, plus an early repayment charge if you’re still within the promotional period.
The new mortgage will usually have some fees attached, too, including application/set-up fees, survey fees from the lender and solicitors’ fees. Still, if you’re reducing your interest rate significantly – for example, from an SVR of 5% to a fixed rate of 2.5% – then you’ll likely save thousands of pounds in the long run.
Another common reason is remortgaging to release equity. By remortgaging, you're able to borrow additional money from the lender.
There are a number of reasons you might want to remortgage to release equity:
Home improvements: You could increase the value of your home by remortgaging for home improvements.
Debt consolidation: You might remortgage for debt consolidation, to reduce your credit card debt. Your mortgage will offer a far lower interest rate.
To get a buy to let property: You could release equity to make it possible for you to afford a buy-to-let property.
If you remortgage to a new deal with a lower interest rate, you could pay less money overall and your monthly repayments will be lower.
For example, if you currently owe £200,000 with an interest rate of 5% and 20 years left on your mortgage, you will pay nearly £80,000 over the next 5 years (£1,320 per month).
But if you were to remortgage to a 5-year fixed rate mortgage at 2.5%, you would pay less than £64,000 over the next 5 years – that’s a saving of about £15,000 over 5 years.
If you try to exit your fixed rate, discounted rate or tracker mortgage during the specified term that you signed up for, there will most likely be an early repayment charge (ERC). This is usually calculated as a percentage of what you owe, so it could be tens of thousands of pounds.
When your initial promotional term ends, you’ll automatically revert to your lender’s SVR, which will probably have a significantly higher rate than you previously enjoyed. This is when most people look to remortgage, so you’ll need to get cracking with your application before this happens.
Sorting out a remortgage usually takes between 1 to 2 months, although it can take longer if there are any complications, such as if your application is rejected. If you get a new deal with your current lender, the remortgage process is likely to be faster than if you decide to change to a new lender, but the current lender will still need to do a deep dive into your finances to be sure you can comfortably meet the payments.
So in general, it is usually worth starting the remortgaging process at least 2 months before your current deal ends. If you manage to secure a good remortgage deal, you’ll find it is valid for between 3 and 6 months, so if it’s all arranged a few weeks in advance, you can rest easy that you’ll be able to make the switch.
Before looking for a remortgage deal, you should work out exactly how much equity you have. To do this, you need the current market value of your home, and your total remaining mortgage debt.
Each lender has their own criteria for deciding what rate to offer each customer. Typically, the best remortgage deal will be the one that has the lowest interest rate and zero or low set-up fees.
To find the lowest remortgage interest rate, you will usually need a low loan to value (LTV) ratio. If your house value has gone up and you have been paying off your mortgage for a few years, you will likely have a large amount of equity in your home and a low LTV.
You also need to decide if you want to borrow more money when you remortgage, as that will affect your LTV.
You can usually remortgage with your existing lender, however, you’re not restricted to using your existing lender if there is a better remortgage deal available. You can switch lenders when you remortgage, but be aware of any costs or penalties you may incur if you are still within an existing mortgage deal. Ideally, wait until your current deal has ended and you can remortgage without paying any penalties.
It’s important to remember that remortgaging is just like taking out a new mortgage, even if you already own your property outright or you're looking to remortgage with the same lender. The lender needs to be satisfied with your credit history and the affordability of the new mortgage. Your income and all your outgoings (including other lines of credit) will need to be assessed before your remortgage is approved.
Just like any type of credit, applying for a remortgage will appear on your credit record whether you’re accepted or not. For the same reason, it is best to try to avoid applying for multiple remortgages at the same time – it can be expensive if there are up-front fees, and you could end up with a few hits on your credit record, which could further decrease the chance of being accepted for a remortgage.
The chances are that you're likely to be able to find a remortgage deal. But depending on your financial situation, or the type of mortgage you have, it might be tricky.
There is no blanket policy on age limit when it comes to mortgage lending and it is up to each mortgage provider to determine the age limits that apply to their policies. Lenders may require that the mortgage is repaid by a certain age, however, check with each specific lender before deciding whether to go ahead.
A secured loan doesn’t prevent you from being able to remortgage but it may be slightly more difficult to find a lender who is willing to offer a remortgage deal. Be careful to ensure that your new lender is aware of the secured loan before you apply for a new mortgage, as not all lenders may be prepared to remortgage the property with a secured loan attached.
If you have a poor credit rating, going for a remortgage might not be your best option.
If your financial circumstances have changed since your first mortgage application, you could end up with a worse rate than you have now. If that’s the case, it's probably best to wait until your credit score has improved to get a better rate.
If you're looking to increase your share of your home, it's possible to get a remortgage on your shared ownership property.
It's not much different from a standard remortgage, although you'll need to find a lender who offers Shared Ownership mortgages, which could limit the options available to you.
If you have a Help to Buy equity loan, you might want to remortgage your current property to exit the scheme. By remortgaging, you could increase your borrowing to repay the equity loan in full.
Or you might want to remortgage your Help to Buy property if your fixed rate period is coming to end. By doing so, you could avoid being moved to your lender's potentially more expensive standard variable rate.
But not many lenders offer Help to Buy remortgage deals, and many require you to pay off your equity loan in full first, so your options may be limited.
Even if you took out your first mortgage at 95% LTV, by the time you come to remortgage your home, you are likely to have built up your equity because you’ve repaid some of the principal debt through your monthly repayments.
If you have built up a reasonable amount of positive equity in your home, you will not need a deposit for a remortgage – you can use that equity in its place. And if you’ve built up some savings, you could also add those funds to the new deal, thereby reducing your LTV even further.
The decision to remortgage ultimately rests on one main thing: will you save money with a new mortgage?
To work that out, you need to calculate what fees (if any) you will need to pay to exit your current mortgage and any fees for taking out a new one.
To leave your current mortgage, there will likely be a flat exit fee of £50 to £200, plus an early repayment charge if you’re still within the promotional period.
The new mortgage will usually have some fees attached too, including application/set-up fees, survey fees from the lender and solicitor fees.
Still, if you’re reducing your interest rate significantly – for example, from an SVR of 5% to a fixed-rate of 2.5% – then you’ll likely save thousands of pounds in the long run.
If the value of your home has dropped below the mortgage itself, you will be in negative equity. You will owe more to your lender than you would get by selling the property. In this instance, remortgaging to a cheaper deal will be nigh on impossible and you may be stuck on your lender’s SVR until the value of your property exceeds the mortgage, or you can overpay enough to reduce the mortgage amount until it is lower than the property value. If you are stuck on your current deal, you are what is known as a mortgage prisoner.
To compare the best remortgage deals available, use a mortgage calculator to calculate how much you can borrow and find out the cost of remortgaging your property.
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Last updated: 15 December, 2020