What is a Remortgage?

Remortgaging is the process of switching your current mortgage to a new mortgage deal. This could be with your existing lender or a different lender. You don’t have to move home as the new mortgage is secured against the property you already own.

A remortgage, like any mortgage, is a long-term commitment so you should make sure it’s the right move for you before you decide to go-ahead.

 

Why you might choose to remortgage

 

a) The current deal on your existing mortgage is coming to an end

 

Many of the mortgage deals available on the market only last for a few years, such as 3-year tracker or a 5-year fixed rate. When your deal comes to an end, your lender will put you on its standard variable rate which will generally be higher than your old interest rate.

You may decide to remortgage to get a cheaper rate.

 

b) To obtain a better rate

 

If you find that there are better deals out there that would save you money, this could be an excellent reason to remortgage.

 

c) Your home has substantially increased in value

 

If the value of your home has greatly increased since you took out your mortgage, you may find you are in a lower loan-to-value band.

To calculate your loan-to-value, divide your outstanding mortgage amount by the current value of your property, then multiply the result by 100. This will give you a percentage. This is your loan-to-value.

The lower your loan-to-value is, the more mortgage deals are likely to be available to you.

 

d) To safeguard against interest rates going up

 

If you’re worried about the interest rates going up and affecting your mortgage, you should carry out some research before diving into a remortgage.

Your concern may be valid but the easiest way to find out where the relevant interest rates are heading, is to take specialist legal advice.

 

e) You want to pay extra each month, but your current lender won’t allow this

 

If you want to pay off your mortgage ahead of time by overpaying each month but your lender won’t let you do this, a remortgage can be an excellent move.

It may be that your current financial situation allows you to take out a smaller mortgage and therefore get a lower interest rate when you remortgage.

 

f) Interest-only to repayment mortgage

 

Your mortgage supplier may allow you to make this change without taking out a remortgage but if that isn’t the case, then remortgaging could be the way to go.

 

g) To borrow more money

 

Perhaps you want to make improvements to your home or pay off debts.

Your lender may agree to increase the amount of money borrowed through your current mortgage, but if not, then remortgaging could be the answer.

 

h) Flexibility

 

You want a more flexible mortgage that allows you to take payment holidays or combine your savings with your mortgage, or some other option that your current mortgage doesn’t allow for. The interest rates for mortgages that allow such flexibility may be higher but is it worth that extra each month to have the flexibility? Only you know the answer to that.

 

Where a remortgage may not be the answer

 

a) Small mortgage

 

If you’ve paid off the majority of your mortgage already, or perhaps the mortgage was small from the outset, it may not be worth remortgaging. With mortgages below £50,000, look at whether you’d actually be saving money by remortgaging. Small mortgages are far more likely to attract higher fees and some lenders won’t offer them at all.

 

b) Large early repayment charge

 

If you would have to pay a large early repayment fee if you chose to remortgage, then you must work out whether paying it would offset any benefit you would make from remortgaging. It might be a better idea to discuss switching to another deal with your current lender.

 

c) Circumstances in your life change

 

Perhaps you’ve taken early retirement or you’ve become self-employed. Whatever the change is, it might be that your current mortgage doesn’t work for your changed circumstances and you wish to remortgage.

Since April 2014, stricter mortgage rules have meant that all lenders must see proof of your income, and if they feel that your new circumstances won’t be able to support a remortgage, you’ll be stuck with your current mortgage.

 

d) The value of your home has gone down

 

If your home is worth less than it was when you bought it and you’re in negative equity where your mortgage debt is higher than the value of your property, your lender is unlikely to allow you to remortgage.

 

e) Credit history

 

The Financial Conduct Authority requires all lenders to ensure that anyone taking out a mortgage can afford the repayments.

If your credit history isn’t good enough to satisfy a lender, they’re unlikely to allow you to remortgage your home.

 

Checking the costs of remortgaging your home

 

Before you consider remortgaging, find out exactly how much it will cost to leave your current mortgage. Is there an early repayment fee? What would the remortgage fees be? If you’re thinking of taking financial and legal advice, how much will it cost? You will need to balance all of these costs against your remortgage to find out whether it would leave you in a better place financially.

Although you may wish to remortgage with your current lender, it’s always worth having a look at a range of mortgage deals from different lenders too.

Having said that, it’s generally less costly and simpler to remortgage with your current lender.

Speaking to an independent mortgage adviser, who isn’t tied to any particular lender, will help you work out whether remortgaging will save you money in the long-run.

 

a) Remortgaging and your credit rating

 

When you apply for any kind of credit, it will be displayed on your credit record, but taking out a remortgage that improves your financial situation will generally improve your credit rating.

 

b) Do your need a deposit for a remortgage?

 

Instead of a deposit, you can use the equity in your home (the percentage of your home that you own outright) to fund your remortgage.

It is possible, however, to take out a smaller mortgage by paying a lump sum from your savings when you remortgage.

 

How to remortgage your home

 

• Have your home professionally valued, for instance, by an estate agent. Having a professional evaluation will be a good starting point for any remortgaging discussions.
• Find out how much you still owe on your mortgage. You can do this by asking your lender for a redemption statement or checking your last mortgage statement. With this information and the valuation of your home, you will be able to calculate your loan-to-value.
• Decide what type of mortgage you would like to change to. Are you simply looking for better interest rates? Do you need more flexibility on payment holidays? Are you interested in moving from an interest-only to a repayment mortgage?
• Speak to an independent mortgage adviser or your current lender, or both, to find a remortgage deal that suits.
• Apply.

 

How legal advice can help

 

To ensure you know exactly how remortgaging your home, including leaving your current mortgage deal and entering into the new deal, will affect your finances, it is always recommended to take expert advice.