Everything you need to know about remortgaging
Have you ever thought about remortgaging your home? Whilst many mortgage-payers will be very happy with their current mortgage deal, there will be a handful of homeowners who might be looking to switch deals – potentially saving hundreds of pounds every year.
The various reasons for making a switch will be expanded upon in this guide, where you should find out everything you need to know about remortgaging.
Once you have all the information at your fingertips, you can make an informed decision about whether or not remortgaging is right for you. At least, that’s what the Guru would advise. That, and never put your Guru robes on a 40-degree wash.
Who will benefit most from this guide?
First and foremost, this guide is for homeowners who are still paying a mortgage. If you’re a first time buyer or are still renting, the information included might not be relevant to your current situation.
As a homeowner and mortgage-payer, you might have heard of remortgaging or are already doing your research. If not, this guide will be particularly useful for finding out exactly what it is, and how it can benefit you.
What is remortgaging?
When you choose to remortgage your home, you are choosing to swap your current mortgage deal for a brand new one. This could be a better deal with the same lender, or you could move over to a completely new lender entirely.
Remortgaging doesn’t mean you’re moving home. This would require you to apply for a new mortgage or look at porting your existing mortgage if your current deal allows.
Since a mortgage is taken out over a much longer period of time than any other financial product, it is likely that what might have been a good deal five years ago, might not be now.
Equally, if you took out a mortgage deal based on what you could afford ten years ago, it might be that you can now afford to pay more now, but are unable to due to certain restrictions in your current mortgage deal.
Whilst it might not be for everyone, the aim of remortgaging is to save money overall and potentially pay your mortgage off earlier. If you can achieve that without incurring too many costs yourself, you might find you can save thousands of pounds in the long run.
Why should I remortgage?
The main reason that any financially-savvy homeowner will choose to remortgage is to save money. Changing lenders might give you the opportunity to reduce your monthly payments dramatically and save in the long run. It might even help pay off your mortgage sooner, reducing the overall interest you need to pay back.
Like any other product, it’s worth shopping around for the best deal before you decide on the one that is right for you. Here are the big reasons for choosing to remortgage:
Your fixed term has finished
Most mortgages start off with an introductory period of fixed-rate interest, meaning that your monthly repayments are exactly the same. But once this initial period finishes, your interest rate is highly likely to go up, meaning more expensive payments every month.
Your lender is unlikely to inform you of the change, so it’s important you keep track of when this period will end. Remortgaging can secure a new period of fixed rate interest, meaning easier to manage payments for longer.
Unhappy with your current mortgage deal
Are you unhappy with your current mortgage deal? What might have been a great mortgage deal five years ago might not work for you now, due to the parameters of the deal itself or certain restrictions that you might find yourself stuck with after all this time.
Restrictions can include a cap on the amount you can overpay by every month or the inability to take a payment holiday. Perks like these can really help in the long run, so if your current mortgage doesn’t allow these, remortgaging might be a good option for you.
Change in circumstances
You might have recently changed job, retrained through education to start a new career or you’ve had a family. Your mortgage isn’t compatible with your current earnings, whether they are higher or lower than when you first took it out.
For example, if you start earning more through a promotion or career change, you might be in a comfortable position to repay your mortgage quicker. If your current mortgage won’t let you repay as much as you like due to a cap on overpayments, remortgaging is a great option to allow you to do just that.
Raise additional funds
Remortgaging can be one way to raise additional funds. By taking a remortgage deal that is higher than what you currently owe, you can put the extra amount aside for a significant purchase such as a home improvement or new car.
Just be aware that the lender is likely to ask you exactly what you will be using the additional funds for, so you’ll have to get their consent before going ahead with your plans.
Is remortgaging a bad idea?
Even though remortgaging can seem like an attractive prospect for any homeowner, there are certain circumstances where it might do more harm than good. In other words, it will cost you more money than you might save, meaning it might be a waste of time (and a waste of money).
The following circumstances might make remortgaging a bad option for you:
- Early repayment charges – you can often incur additional charges if you’ve either overpaid too much on your mortgage deal or repaid the rest of your mortgage too early. The charges can be quite severe if you happen to do this within your initial period so it might not be worth it to remortgage until this period has finished
- Too little equity or negative equity – if you’re looking to borrow more than 90% of the value of your home, you might struggle to get a remortgage deal from current lenders
- Small amount left to pay – on the other hand, if you only have a small amount left to pay, it’s unlikely that remortgaging will save you much money
Do any of the above circumstances apply to you? It doesn’t mean that you could never remortgage. In fact, it might be that your current circumstances are only temporary.
If you have a period where you might incur hefty early repayment charges, it’s a good idea to find out when this will run out. You can even start planning for that day now, and do some initial remortgaging research using this guide in preparation.
How long does it take to remortgage?
The process of a remortgage is very similar to a mortgage, but should be much quicker as you aren’t actually moving house. If everything goes smoothly and you’re accepted, your remortgage could take between 30-60 days.
If you get a referred decision or there are any other delays in getting paperwork through, it could be longer. If you’re waiting for your early repayment period to finish, try and time it to coincide as close to the end of this period as possible.
If you come across any issues, speak to your current lender and possible new lender for advice. You can also reach out to a mortgage broker if you would like further help with finding the right deal and when to apply.
Choosing the right remortgage deal for you
Unlike choosing a mortgage deal for the first time, the options you have available will be a bit more familiar. You might already have a good idea of exactly how you would like your remortgage deal to look, especially if your existing mortgage has been a struggle.
The options should be reasonably familiar depending on how many times you’ve moved house, but the following wisdom should help you jog your memory:
- Repayment – the most common and easiest option for those choosing a new mortgage, this allows you to repay the loan and interest all in one go. It might be more expensive, but it’s a lot easier to manage
- Interest-only – whilst still available, this option isn’t as popular as a straightforward repayment mortgage. It allows you to pay off the basic interest, but leaves the actual value of the loan until the very end of the term. Tricky unless you organise an additional saving scheme that will allow you to pay it off
- Fixed-rate – this indicates how long you can have a fixed interest rate for, meaning that you will know exactly how much you will be repaying each month. This protects you against rates getting higher, but can also stop you benefitting from rates getting lower
- Variable-rate – rather than stay at a fixed-rate, a variable-rate mortgage will change depending on a rise or fall in the economy, or a rate dictated by the lender. There are three types of variable-rate mortgage:
- Tracker – this mortgage will rise or fall in line with the Bank of England base rate (or equivalent named interest rate that the lender prefers)
- Standard Variable Rate – this mortgage will do the same, but will usually be a few percentage points above the base rate it’s following
- Discount Variable Rate – lenders can take their SVR and apply a discount for a short period of time as a way of appealing to customers
Alongside the main parameters of your remortgage, it’s worth researching whether you’re able to make overpayments and whether you can take payment holidays. Certain perks are very useful, but might come with their own sacrifices in the form of a higher interest rate, so make sure they fit your requirements.
Last things to remember
- Find out exactly how much you still owe on your current mortgage – this will give you your exact Loan-to-value ratio (LTV) and how much equity is held in your house
- Check your credit score – just like your original mortgage, it’s worth getting an indication of your credit score through a credit report. This will reveal whether you’re seen as trustworthy by major lenders and how likely you are to being accepted for a remortgage
- Choose a new mortgage term that suits you – unless you are earning less and need to extend your mortgage over a longer term to have smaller payments each month, it’s worth choosing a term that is less than your original mortgage so you can stay on track to pay it off at the same time or earlier than before
Also remember that remortgaging your home, just like a regular mortgage, will incur certain fees during the process. These will need to be factored into the remortgage deal you finally take so it’s worth asking the lender what each of these will amount to before committing. They include:
- Arrangement fee – usually the highest fee included in a remortgage, the arrangement fee can be upwards of £2,000, so is worth enquiring about as lenders will sometimes not advertise how much it is from the outset
- Booking fee – also referred to as a reservation fee, this is primarily to secure a mortgage deal in case anything changes in the meantime. Normally around £100 to £200
- Valuation fee – unless it’s advertised as free, it might be up to £400
- Legal fees – they can often be advertised as free within a remortgage deal, but if not could be as much as £300
- Deeds release fee – this is the cost of your lender forwarding the title deeds to your solicitor, normally costing between £50-£200
Now it’s time to start searching for your perfect remortgage deal. If you have a better understanding of what you want already, it should stand out like a particularly glamorous unicorn in a herd of regular, less-fabulous (but still pretty great) horses.
If you feel that a remortgage could save you money in your current circumstances, start having a look at current remortgage deals to see which one takes your fancy. Make sure to select ‘remortgage’ to see the most appropriate options for you.