If you want to move your mortgage from your current lender to a new one, you need to remortgage. But what exactly does this mean, what are the benefits of doing this and how does remortgaging work?
What is a remortgage?
A remortgage is when you move the mortgage you have on an existing property to a new mortgage with a different lender. The new mortgage replaces your original one but you may be able to benefit from a deal that is more suitable for your current circumstances. You may get a more competitive interest rate, for example, which will lower your monthly payments. Or you may benefit from more flexible terms or be able to borrow more money.
A remortgage is different from switching to a new deal with your current lender. This is called a product transfer. It’s also different from porting your mortgage, which is when you essentially take your current mortgage with you when you move home.
How does remortgaging work?
When you remortgage, the new loan that you take out with a different lender replaces your existing mortgage loan with your current lender. The new mortgage pays off the old one and can often save you money with a better interest rate or lower loan-to-value ratio. You can remortgage at any time but you need to check that you won’t be penalised with an early repayment charge. Usually, remortgaging is a good idea when you’re coming to the end of your mortgage deal’s introductory period.
Why remortgage?
There are lots of reasons why remortgaging may make sense for you:
Your current deal is coming to an end
If your introductory deal is about to end, you’ll be moved onto your lender’s standard variable rate (SVR) unless you arrange a new deal. The SVR is usually higher than other rates so it makes sense to shop around for a better deal.
You have found a better interest rate elsewhere
You may have noticed that another lender is offering a better rate than the one you’re currently paying. Not only will this lower your monthly mortgage payments but it will reduce the overall amount you pay for your mortgage loan.
You want more flexible terms
Whilst the deal you have now may have suited you originally, you may prefer to have more flexibility to suit your current circumstances. For example, you may want to make overpayments without being penalised, change your mortgage term or put your savings to work, such as with an offset mortgage.
The value of your home has increased
It’s likely that your home will have increased in value since you first bought it. This means that the loan-to-value ratio may have changed, giving you access to more deals with better rates and terms.
You want to change the type of interest rate you’re paying
You may, for example, be paying a variable rate but are concerned that rates may increase. As such, you may want to change to a fixed-rate deal.
You want to borrow more money
If you have equity in your property, you can borrow more when you remortgage. You may want to carry out some home improvements, for example, or make an expensive purchase or consolidate some debts.
You want to change from an interest-only to a repayment mortgage
Whilst interest-only mortgages usually have lower interest rates than repayment mortgages, you’re not paying off any of your mortgage loan with your monthly payments, just the interest. You’re also paying more for your mortgage overall as the interest is calculated on the entire loan every month.
Therefore, although an interest-only mortgage may have been right for you at the time, you may now prefer to change to a repayment mortgage. Just double-check with your current lender first as they may be able to change this for your existing mortgage.
How long does it take to remortgage?
Once you’ve applied, the remortgaging process usually takes about 4 to 8 weeks. You’ll need to provide the lender with details of your current mortgage as well as your personal and financial information. A valuation will be carried out on your property and the lender will do a credit check on you. You’ll also need to use the services of a solicitor or a conveyancer for the legal aspect of the transfer. Many lenders offer a free legal package as an incentive when you remortgage with them.
If you have all of the relevant paperwork ready, such as proof of earnings and paperwork relating to any other loans or credit commitments, this can help to speed up the remortgaging process.
The benefits of remortgaging
Remortgaging can offer a number of benefits. For example, you can get a better rate and lower your monthly payments. If you change from a variable to a fixed rate, it can give you stability and peace of mind that your rate won’t change within the fixed-rate term. You may be able to borrow more to pay for a large purchase or carry out home improvements. Or you may prefer the flexibility to repay your mortgage sooner, either by shortening your mortgage term or increasing your monthly payments.
Considerations before remortgaging
Before applying for a remortgage, there are some things to consider first.
An early repayment charge
You may be liable to pay an early repayment charge when you leave your existing mortgage. This fee can be very expensive so check this with your current lender.
How much you want to borrow
If your home has some equity in it, you may wish to use a remortgage to borrow more. That way, you can cover a big expense that you’ve been planning. For example, paying for home improvements or buying a new car. Work out exactly how much extra you need to borrow and factor in the costs of an early repayment charge, if applicable, and the fees to remortgage. This will give you an idea of whether remortgaging is a cost-effective solution or you’d be better off taking out another type of loan or using a low-rate credit card. Remember that you’ll pay interest on the additional amount borrowed so this will add up considerably over the length of your mortgage term.
The benefits you want from a new mortgage
Consider all of the reasons you want to remortgage. Do you just want to get a lower rate or do you also need more flexibility, such as to make overpayments and reduce your mortgage term? Or is it more important to you to have the flexibility to exit your mortgage more easily and pay a higher interest rate in return?
The remortgaging fees
Calculate the costs to remortgage with a new lender and compare these against any penalty fee you may incur from your current lender. Remortgaging fees can include an arrangement fee, a valuation fee and legal costs.
Your credit score
It’s important to review your credit score as the new lender will carry out a credit check on you. If your score has lowered since you took out your original mortgage, take steps to improve your credit rating before applying for a remortgage.
Your current lender’s rate
Compare the new rate your current lender has offered you with rates for remortgage deals before making your decision. If you’re happy with your current lender and deal, the rate they offer you may be ideal. If the rates for remortgage deals aren’t that different, it may not be worth changing to a new lender anyway.
Negative equity
If the amount you owe for your mortgage is higher than the value of your home, you’re in negative equity. In this case, or if you have low equity in your home, you may find it difficult to remortgage.
We can arrange your remortgage
Our mortgage brokers are here to discuss your circumstances and help you decide whether remortgaging is the best course of action to take. If it is, they’ll compare the options available and find the best remortgage deal to suit your needs. They’ll tailor your application to meet your specific requirements and guide you through the remortgaging process to make it as smooth as possible. Just give us a call on 01322 907 000 and benefit from expert help arranging your remortgage.