How To Remortgage

It isn't right for everyone to refinance, but it can have some advantages depending on your situation. If you had a cheaper interest rate on your debt, you could free up some capital that's locked up in your home.

The following are included in this guide: 

• Remortgaging: What does it mean?

• Remortgaging: What are the benefits?

• Remortgaging: What are the disadvantages?

• Remortgaging: How Long Does It Take?

• Remortgaging: How Much Does it Cost?

Remortgaging - what does it mean?

The process of remortgaging involves switching your existing mortgage to a new one on the same property.

You can either stay with your current lender or find a new one, and you can either change your mortgage deal or use it to release equity. 

What are the benefits of remortgaging?

Remortgaging has a number of benefits, which we've summarised below.

• You may be able to move to a deal that is better suited to your current situation

• Interest rates could be better

• Find a mortgage that allows overpayments with fewer fees, such as one that allows overpayments

• Your home could provide you with access to money you currently have locked up

Remortgaging is commonly done for 4 reasons:

1. Obtain a better interest rate

Typically, if you have a fixed or variable rate mortgage, you'll revert to your bank's Standard Variable Rate (SVR) at the end of its term.

Most people choose to remortgage at this point because the rate is significantly higher than a normal rate.

You'll also be remortgaging at a lower Loan to Value (LTV) as you'll have paid off a chunk of your loan through your existing mortgage.

Your Loan to Value determines how much you're borrowing in relation to the value of your property - meaning you'll likely be borrowing less than your property's value, which will result in a lower LTV.

In addition, if your home has appreciated in value since you purchased it, this will reduce your LTV. You'll typically qualify for lower interest rates with a lower LTV because a lower LTV means less risk for your lender.

2. Consolidating your debt

Remortgaging can free up money from your property to pay off other forms of debt, including personal loans and credit card balances.

Your mortgage may have a lower interest rate than your other debt because it's secured against your property, so you could save on repayments. You will only have to make one monthly repayment since all your debt will be in one place.

If you are unable to make your mortgage payments, you may end up losing your home. Consult a mortgage broker if you're unsure.

3. Become debt-free sooner

In many cases, your lender will charge you a penalty if you pay back too much of your mortgage too soon.

You could pay off your loan faster if you remortgage to get more flexible overpayment terms if you're eager to become mortgage-free.

4. Home improvements 

When considering an extension or a new kitchen, many people choose to remortgage their homes to free up the capital.

As you will have paid back some of your original loan, you could remortgage at the same LTV as you did originally, but get some cash back.

A mortgage adviser might be the best option for you if you're in any of the above situations, but not sure how to proceed.

Remortgaging: What are the disadvantages?

You might have trouble getting a mortgage if your financial situation has changed - for example, if you now have a lower credit rating

• Remortgaging involves fees

• Early repayments or redemptions may incur fees

• It may be difficult to get a new mortgage if you are close to retirement

• When you become self-employed or your income decreases, you may have trouble showing that you can afford a mortgage

Remortgaging: How Long Does It Take?

Depending on your situation, your remortgaging process may take a different amount of time. In general, you will receive a mortgage offer around a month after submitting your application.

Remortgaging Costs: What Are They?

The costs of a remortgage can also vary, just like the time it takes. There are, however, certain fees and averages you can expect to pay when remortgaging.

You can divide your mortgage costs into two categories: leaving your current mortgage and getting a new one.

Charges For Early Repayment (ERCs)

Early Repayment Charges on your current mortgage are a major factor to consider when thinking about remortgaging.

It can be expensive to end your current mortgage before the end of its term.

For advice on whether remortgaging is worth the cost, or if any ERCs apply to your current policy, speak to a mortgage broker.

Legal Fees

Remortgaging via a 'product transfer', which means staying with your current lender but moving to a new deal, requires little to no additional legal work, so there's no additional cost.

A solicitor or conveyancer may be required if you're changing lenders. A fee of up to and above £500 could be charged depending on what services are required for your situation.

Admin Charges

Your current lender will also charge you general administration fees, which usually range between £50 and £300, depending on the lender.

Arrangement Fees

Fees for arrangements can range from $1,000 to $1,500. In order to set up your mortgage, you must pay this to your new lender.

Reservation Fee

Reservations or applications may require a fee of up to £200, but it should not exceed that amount.

When you secure a fixed rate or discounted deal, this is often the case. 

Valuation Fee

Generally, a property valuation costs around £400, although this can vary depending on the type of property.

Broker Fee

 Individual circumstances and property values can greatly affect mortgage broker fees. It is common for brokers to charge 1% of your loan amount, so £1,000 for every £100,000, while others may only charge a fixed fee.