Remortgages
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What is a remortgage?
A remortgage is when you switch your mortgage to a new deal, either with the same lender as your current mortgage or a new provider. It's a popular option for homeowners looking to lower their monthly payments or release the equity they've built up in their property.
Typically, people consider remortgaging when their current fixed or discounted rate is coming to an end, when they've built up enough equity in their home, or when they spot an attractive deal they'd like to benefit from.
Remortgaging involves the same application process as your original mortgage. You'll need to provide proof of income, undergo credit checks, and usually have your property revalued. Switching to a new mortgage can lead to significant savings over time, but it's important to consider any fees involved and make sure the change works for you and your finances.
Reasons for Remortgaging
As you look into remortgaging, you might find it useful to explore some typical reasons other homeowners have for switching deals.
Lower Interest
If interest rates have dropped since you took out your existing mortgage, remortgaging could help you secure a lower rate, potentially saving you money on your monthly repayments. You might wish to lock in your interest with a fixed rate deal or opt for a tracker deal if you prefer to follow the base rate.
Get your quoteFixed Rate Ending
When your initial fixed-rate period comes to an end, your lender will usually move you to their standard variable rate (SVR), which is often more expensive. Remortgaging at this point could help you avoid the increase in costs.
Get your quoteEquity Release
If your property has increased in value since your current mortgage started, remortgaging could give you access to some of that equity in the form of a lump sum. This can be useful if you're planning home improvements, debt consolidation, or a major purchase.
Get your quoteMortgage Type
Remortgaging gives you the opportunity to change the structure of your loan. You might want to switch from an interest-only to a repayment mortgage, or vice versa. Whether or not your current mortgage deal is ending, changing the loan structure could help lower your payments or pay off your loan sooner.
Get your quoteDebt Consolidation
If you borrow more by remortgaging, you could potentially pay off high-interest debts, consolidating them into your mortgage at a lower interest rate. You should carefully consider the size of the new debt and any early repayment fees that apply to the debts you're looking to pay off.
Get your quoteA Better Deal
Some mortgage deals offer attractive features like the ability to make overpayments or take a payment holiday. If you've paid off a significant amount of your mortgage already, your lower LTV (loan-to-value ratio) could give you access to these flexible features or a better rate overall.
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Interest Only vs. Repayment Mortgages
Here are some key differences between the two main types of mortgage available:
Interest Only Mortgages
With an interest only mortgage, your monthly repayments only cover the interest on the loan, leaving the loan itself to pay off at the end of the mortgage. This means lower monthly payments in the meantime, but you'll typically need a larger deposit and a higher income to secure this type of mortgage. You'll also need to show lenders a solid repayment plan that proves you'll be able to pay the loan at the end of the term.
Interest only mortgages are more less common for residential properties, but they can suit those with an unusual income structure or a temporary need to lower their monthly outgoings.
Repayment Mortgages
A repayment mortgage, also known as a capital and interest mortgage, covers both the interest and a portion of the loan amount with each monthly repayment. This type of mortgage means you gradually reduce the amount you owe over time, paying off the total by the end of the mortgage term.
While monthly payments are higher with a repayment mortgage, you have the security of knowing you're working towards outright ownership of your property. You're also in good company -- repayment mortgages are the most common homeowner mortgage, often opening up lower rates and better deals as your remaining loan reduces.
Remortgaging Pros and Cons
Advantages
- Monthly Savings: By remortgaging, it's possible to find a better interest rate and reduce your monthly repayments.
- More Flexibility: You could gain access to more flexible mortgage features and terms that suit your current situation.
- Financial Leverage: A remortgage could allow you to release equity from your property for other financial goals.
Disadvantages
- Fees and Charges: Remortgaging often involves various fees, both for ending your current mortgage and starting a new one, which could offset the potential savings.
- Longer Term: Extending your mortgage term could mean paying more interest in the long run, even though your payments decrease in the meantime.
- Early Repayment Charges: As well as a standard exit fee for ending your mortgage, your current provider might impose an early repayment charge (ERC).
When is the right time to remortgage?
When it comes to remortgaging, timing is crucial. Generally, it's worth considering a remortgage deal when your current fixed or discounted rate is coming to an end. This is because you'll likely be moved onto your lender's standard variable rate (SVR), which is often higher than other available rates.
It's also a good time to explore remortgaging if your property's value has increased significantly, as you may be able to access better rates due to your improved loan-to-value ratio. The extra equity might also be of use if you have a major expense coming up or you wish to pay off another debt.
In any case, it's important to start looking into your options at least three months before you want to switch, as the remortgaging process can take time. Keep an eye on interest rate trends and your own finances to determine the optimal time for you to make a change.
Remortgaging Fees and Charges
1. Early Repayment Charge (ERC)
If you're leaving your current mortgage deal before it ends, you may have to pay an ERC. This is usually around 2% of the remaining loan amount, which can easily run to a few thousand pounds depending on how long you've been paying your mortgage.
2. Exit Fee
As well as an ERC, some lenders also charge an exit fee at the end of your mortgage, regardless of when or how it ends. The exit fee is usually a smaller amount of a few hundred pounds, but it's worth checking with your provider and factoring this into your calculation.
3. Arrangement Fee
When it comes to setting up your new mortgage, providers will likely charge an arrangement fee. This can be a flat fee or a percentage of the loan amount, usually around 2%. This is often the most substantial cost of remortgaging.
4. Booking Fee
Some lenders charge a booking fee to secure a particular mortgage deal, usually around £100-£300. Also known as a reservation fee or application fee, the booking fee is usually non-refundable, even if your mortgage application doesn't go through.
5. Valuation Fee
Before they offer you a mortgage, your new lender will want to assess the current value of your property. Some lenders offer this service for free, while others charge a fee based on your property's value. These can run from a few £100 to a few £1000.
6. Legal Fees
These cover the cost of the legal work involved in remortgaging, known as conveyancing. Some lenders offer free legal services as part of their remortgage deal, but you may prefer to use your own solicitor.
Preparing to Apply for a Remortgage Deal
Our expert says:
"Remortgaging can be a savvy financial move for many homeowners. It offers the chance to save money, access better mortgage features, or release equity from your property. But it's not a one-size-fits-all solution. Take the time to look beyond the headline interest rate and consider all associated costs against your long-term financial goals."
Frequently Asked Questions
How long does the remortgaging process take?
The remortgaging process typically takes between 4 to 8 weeks, but it can vary depending on your circumstances and the speed of both lenders. It's wise to start looking into your options about 3 to 6 months before your current mortgage deal ends in case there are delays at either end.
Planning in advance also gives you time to compare remortgage deals online, gather the necessary documents, and complete the application process.
Will I need a new property valuation to remortgage?
In most cases, yes. Your new lender will want to know the current value of your property to determine the loan-to-value ratio and the rates they can offer you. Some lenders may do this through an automated valuation model (AVM), while others might send a surveyor to your property.
If your home has increased in value since you last took out a mortgage, this could work in your favour by potentially giving you access to better rates.
Can I remortgage if I have a poor credit score?
Yes, it's possible to remortgage with a poor credit score, but your options may be more limited. You will likely also face higher interest rates or be required to put down a larger deposit. Your credit history is one of the key factors lenders consider when deciding on the remortgage deal they're prepared to offer, so it could pay to delay remortgaging until you've built up your score.
If your credit score has worsened since you took out your original mortgage, it might be worth speaking to a mortgage broker. A broker may be able to advise on unadvertised deals and lenders more likely to accept your application.
Does it always make sense to remortgage?
Not always. While remortgaging can often lead to better rates and lower monthly payments, it's important to consider all the costs involved. Sometimes, the fees associated with remortgaging can outweigh the potential savings, especially if you're only planning to stay in your current property for a short time.
It's crucial to do a thorough cost-benefit analysis, taking into account any early repayment charges on your current mortgage, the new mortgage's fees, and the difference in interest rates over time. If you can't keep up repayments on your remortgage, you risk falling behind in your payments and having your home repossessed.
Can I remortgage to borrow more money?
Yes, many homeowners remortgage to borrow additional funds, often for home improvements or debt consolidation. This is sometimes called a "further advance" or "capital raising." If you're considering this option, remember that borrowing more will affect your loan-to-value ratio, potentially impacting the rates available to you. You'll also need to prove you can afford the higher monthly repayments.
It's important to consider whether remortgaging is the most cost-effective way to borrow, as spreading additional borrowing over the life of your mortgage could mean paying more in interest in the long run.
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Additional Information on Remortgaging
If you're thinking about switching your mortgage, these official resources can help you understand your options, rights, and the steps involved:
