What is a Remortgage?
A remortgage is when you take out a new mortgage on a property that you already own. You might choose to remortgage to secure a better interest rate, get a new mortgage deal or borrow some more money against your home.
You might wonder what a remortgage is and how it differs from a ‘normal’ mortgage. A standard mortgage is when you borrow money to buy a new home. A remortgage is when you already own a house but you are taking out a new mortgage on it. You can remortgage with your existing lender or a new lender.
How Does Remortgaging Work?
Just as you might shop around for a new mobile phone contract or a cheaper broadband provider so too can you shop around for a new mortgage deal.
If you find a mortgage deal at a better rate than your current deal then it can be a good idea to remortgage to save yourself some money.
Remortgages work in a similar way to applying for your first mortgage but there are a few differences. For example, you don’t need a deposit to remortgage because you are using the equity in your current home instead.
Is Remortgaging Easier Than Getting a Mortgage?
Remortgaging can seem a lot easier than getting a first mortgage. This is because you are not actually moving house so you won’t have a chain to worry about, estate agent fees to pay or removals to organise.
Generally remortgaging should be quite straight forward, especially if you have a mortgage advisor on hand to guide you through the process.
Once you have identified the new mortgage deal you want to apply for then you just need to fill out the required forms. Some lenders might require a new valuation on your home but this can often be done via an automated system.
Providing your mortgage application is straightforward and you have a good credit history then a remortgage should only take between six to eight weeks to go through.
Should I Remortgage?
As with any large financial commitment it is sensible to regularly look at your mortgage deal to make sure it is still the best deal for your circumstances.
Interest rates might go down or new mortgage deals might appear on the market which could save you money. In this scenario remortgaging could be to your advantage.
Some of the reasons you might want to consider remortgaging could include:
Your Current Deal Is Coming to an End
If your current fixed-rate deal is about to end then you should look at remortgaging. When a fixed-rate deal ends your lender will usually automatically put you onto their Standard Variable Rate (SVR). This is usually higher than the Bank of England Bank Rate and can be considerably higher.
To avoid becoming stuck on the lender’s SVR you can remortgage to secure a new fixed-rate deal or switch to a tracker or discount mortgage.
It’s a good idea to start looking for a new deal between 3 and 6 months before your current deal is due to expire. A mortgage advisor can help you to search the market for the most appropriate available deals.
The Value of Your Home Has Increased
If you think your home has gone up in value considerably then it can be worth looking into remortgaging. This is because if the value of your home has gone up a lot then you might have moved into a more favourable loan-to-value bracket. This can mean better interest rates are available to you.
You Want a Better Interest Rate
If your current deal does not have a very good interest rate and you think that you are eligible for a better deal then this can be a good reason to remortgage.
However make sure your current deal doesn’t have exit penalties or early repayment charges or any savings could be eaten up by fees.
If you are considering remortgaging then have a no obligation chat with one of our mortgage advisors to see if remortgaging can save you money.
Is It Better to Remortgage with my Current Lender?
Remortgaging with your current lender can make the process easier as they already have all your details on file. If you are switching to a new deal with your current lender but not borrowing any further money then this is known as a product transfer.
If it has been a long time since you took out your original mortgage, or if you want to borrow more money, then your lender may require you to supply further information, just as if you were applying for a mortgage with a new lender.
The mortgage market is extremely competitive so it is definitely worth casting your net far and wide to see if you can find a better deal with a new lender. A whole of market mortgage advisor can help you to find the most appropriate deals for your circumstances and guide you through the process.
Can I Remortgage to Release Equity From My House?
Yes, you can remortgage to release equity from your existing home. This might be to do some home improvements, buy a new car or to consolidate debt.
When considering remortgaging to release equity it is especially important to take into consideration any fees which might be charged. Large fees could make remortgaging less cost-effective and there could be cheaper ways of borrowing the money.
When approaching a new lender to remortgage and release equity, the lender will usually want to know what you want to use the money for.
Lenders are usually happy to lend money in some circumstances, such as for home improvements, consolidation of debt, paying school fees or buying a new car but generally they will not approve equity release if you want to invest it in a business or buy shares.
Pros and Cons of Remortgaging
There are positives and negatives to remortgaging so it is worth weighing up the pros and cons before you commit:
Pros of Remortgaging
- You could save money by securing a more favourable interest rate
- You could shorten or extend the mortgage term to suit you
- It can be a good way of taking some of the equity out of your house
- Remortgaging might allow you to borrow more money at a better rate
Cons of Remortgaging
- You might be liable to Early Repayment Charges
- You might have to pay large fees
Does It Cost Money to Remortgage?
There are various fees that can come with remortgaging, these might include:
- An arrangement fee: This is charged by the lender for arranging the new mortgage. You can either pay these fees upfront or add them to your mortgage balance.
- Booking fees: these are usually charged up front on top of the arrangement fees. They vary in size but are usually £100 to £200.
- Legal fees: You’ll need to pay a solicitor or conveyancer to organise the legal side of the mortgage. Some lenders will offer to cover legal fees.
- Valuation fees: Some lenders will require you to pay towards the valuation of your property.
- Early Repayment Charges: These are charges you might have to pay to leave your current mortgage deal early. They usually apply on fixed-rate deals. Make sure you check to see if you could be subject to early repayment charges (ERC) as they can be quite significant and may negate any savings you’d make with your new mortgage deal.
- Exit Fees: These are sometimes levied when you pay off your old mortgage before moving to the new one.
Can I Remortgage to Get a Different Mortgage Product?
Some people might choose to remortgage in order to move from one type of mortgage product to another. For example from a tracker to a fixed-rate mortgage, or from an interest-only to a repayment mortgage.
In theory all of these options are possible but in general a lender is more likely to approve a switch from an interest-only to a repayment mortgage than the other way around. This is because lenders usually apply a stricter lending criteria for interest-only mortgages and you will need to prove that you have a plan in place to repay the mortgage in full.
You can find out more about repayment vehicles in our guide to interest-only mortgages.
When Should I Remortgage?
If you are on a fixed-rate deal and want to avoid early repayment charges (ERC) then it is best to wait until your current deal is coming to an end.
In theory it is possible to remortgage after just six months of a new mortgage deal. However the first year of any deal is normally when ERC are at their highest and so it is usually advisable to wait until your deal is nearly up.
How Often Should I Remortgage?
If you are on a fixed-rate deal then it makes sense to remortgage at the end of every fixed-rate term to avoid paying the higher rates of a Standard Variable Rate (SVR).
The average mortgage lasts for 25 years so if you consistently choose 5 year fixed-rate deals you could expect to remortgage 4 times over the lifetime of your mortgage.
If you are on a tracker mortgage then you might choose to remortgage less often depending on the lowest available rates, or you might choose to remortgage at the end of the term of your deal.
There is no limit on the number of times you can remortgage but just beware of fees and early repayment charges which might eat up any savings you’ll make on the new rate.