Remortgaging is a strategic financial decision that can help borrowers optimise their mortgage terms and potentially save money. If you want to learn more about how remortgaging to a new mortgage deal can improve your financial situation, check out the article below.
We will be sharing valuable insights, as well as the key advantages, considerations, and steps involved in the process.
What Is Remortgaging?
Remortgaging is a process in which the borrower gets a new mortgage on a property that’s not yet paid off, and the new mortgage replaces the old one. It’s a prevalent practice among house buyers because it allows them to improve the terms of their original mortgage and get better interest rates.
Additionally, remortgaging can also help borrowers increase their borrowing power and get access to larger loans if they need them.
While remortgage can be a beneficial financial strategy, it's important to understand that the decision to remortgage should be carefully considered and based on individual circumstances. It may be suitable for some, but not for all borrowers.
To kick things off, let’s first discuss the workings of a remortgage and understand what goes on in the process, and then we will move on to the finer details like benefits, risks, and when it is a good idea to get one.
How does remortgaging work?
Remortgaging is usually referred to as moving your mortgage from one lender to another. However, in essence, it’s not so much moving as paying off your old loan, with a new loan, and this new loan has better terms than the old one. Moreover, remortgage doesn’t necessarily mean moving to another lender because you can also remortgage with your current lender.
With that out of the way, let’s get to the heart of the matter.
There are a few reasons why remortgaging works in the borrower’s favour.
Remortgaging can help get better terms, borrow more, or consolidate debt
Namely, most great mortgage deals only last for a few years. Typically, a fixed-rate, tracker or discount mortgage doesn’t last more than five years, and when it ends, lenders automatically switch you to their standard variable rate (SVR), which is significantly higher. By remortgaging, you have the opportunity to find a new mortgage deal with better terms, such as a lower interest rate or a longer fixed-rate period.
Furthermore, interest rates in the mortgage market can fluctuate based on various economic factors, such as central bank policies, inflation rates, and market competition. Since these conditions change over time, it’s possible that the interest rates may have decreased since you got your first mortgage.
A remortgage will allow you to take advantage of lower interest rates available in the current market.
Remortgaging works in the borrower’s favour because creditworthiness tends to improve over time. As you make your mortgage payments, you build a positive credit history and improve your credit score. If your credit score has significantly improved since obtaining your original mortgage, you may qualify for better interest rates when remortgaging.
Finally, beyond saving money through more favourable interest rates, a remortgage can allow borrowers to borrow more for home improvements, debt consolidation, or any other purposes.
Equity is the difference between the property's value and the remaining mortgage balance. As you make mortgage payments over time, you build equity in your property. Remortgaging allows you to access this equity and potentially borrow more money against your property.
Overall, remortgaging allows borrowers to secure better mortgage terms, such as lower interest rates, longer fixed-rate periods, and increased borrowing capacity. By considering market conditions, creditworthiness, and equity accumulation, borrowers can determine if remortgaging is a beneficial financial strategy for their individual circumstances.
In most cases, lenders set a six to twelve months minimum requirement before they allow the borrower to remortgage. However, there are some options, like day-one remortgages, that can enable borrowers to remortgage early, but their availability and terms may vary depending on the lender and individual circumstances.
Nevertheless, most borrowers usually remortgage within six months of their mortgage deal, or right before their fixed rate goes away and the SVR kicks in. The ideal time for remortgaging also depends on factors such as interest rates, market conditions, and the borrower's financial situation.
Should I remortgage with my current provider?
Deciding whether to remortgage with your current provider or switch to a new lender depends on various factors and requires careful consideration. There are some advantages to sticking with your current provider that may make it worthwhile, including:
Saving money – There are some fees like valuation, solicitor, and redemption fees that you can avoid paying if you remortgage with the same lender. In some cases, some lenders may even waive the early repayment charges, which will save you hundreds to thousands of pounds.
Saving time – Considering that your current provider already has the necessary information to approve the remortgage, the process should go much quicker. It may be prolonged if you want to borrow more money, but it still should be a shorter processing period than when switching lenders.
Benefits of remortgaging with a new lender
On the other hand, remortgaging with a new lender also has its own benefits:
Better rates – The chances that your current lender is offering you the best mortgage rate on the market are very slim. Changing your providers opens you to new opportunities from the newly created market terms, and some lenders likely will offer you a considerably better deal.
Better terms – This is particularly true if you were a first-time buyer when you got your current mortgage. It’s no secret that new entrants in the housing market get subpar mortgage terms and have to compromise with high arrangement fees, long lock-in periods, etc. Switching to a new provider could be a fresh start, where you can get much more favourable mortgage terms.
Better LTV – When sticking with your current provider, there’s a chance your remortgage will be based on the initial valuation. A new lender may require a new valuation where due to property appreciation, your property may be valued at a much higher price, giving you a better loan-to-value ratio. This can also lead to better rates and terms and give you the chance to borrow more.
Ultimately, the decision to remortgage with your current provider or switch to a new lender depends on both your personal circumstances and what the market has to offer.
Carefully weigh the pros and cons, and compare offers from different lenders. If you feel like you need help deciding, consider seeking professional advice to make an informed decision that best suits your financial goals and needs.
Do I need a solicitor to remortgage?
Generally, solicitor services are not required when remortgaging with your current lender, as the transaction doesn’t involve any legal charges. The procedure is a simple product transfer and requires no legal work.
However, remortgaging with a different provider may require you to hire a solicitor to handle the legal aspects of the transaction. The new lender may have their own specific requirements and procedures that need to be followed, which often involve the involvement of a solicitor.
Consider checking this with the new lender to understand their requirements and whether hiring a solicitor is necessary for your specific situation.
Mitigating Changing Circumstances
If your circumstances have changed since you took out your mortgage, it’s worth considering how these changes may impact your current mortgage and whether remortgaging is the right option for you. Certain circumstances that may prompt you to explore remortgaging include the following.
Income changes
Job and employment changes can significantly impact your financial situation. If you have experienced an increase in income, you may be eligible for better mortgage deals and improved affordability.
Conversely, a decrease in income, and even moving to self-employment, can have a negative effect on your affordability and eligibility for remortgaging. Assess your income changes and determine if remortgaging can provide financial relief or better align with your current financial situation.
Credit score changes
If your credit score has improved since obtaining your mortgage, you may be eligible for more favourable interest rates and terms. On the other hand, if your credit score has declined, a remortgage may still be an option, but you might face more limited choices and potentially higher interest rates.
Property value changes
If the value of your property has significantly increased since you obtained your mortgage, it may provide an opportunity to access more equity. Remortgaging could enable you to release some of this equity, which can be used for various purposes, such as home improvements or consolidating high-interest debts.
On the flip side, if the value of your property has decreased, it may affect the availability of remortgage options and the terms offered by lenders.
Life events
Significant life events such as marriage, divorce, starting a family, or retirement can impact your mortgage needs. Considering these changes and assessing if your current mortgage meets your evolving requirements is crucial. Remortgaging might offer an opportunity to adjust your mortgage terms to better align with your new circumstances.
Illness or disability
If you or a co-borrower has experienced a significant illness or disability that has impacted your ability to work or earn income, your mortgage affordability can be affected. In such cases, remortgaging could be an option to adjust your mortgage terms and make them more manageable, given the changes in your circumstances.
In any case, consulting with a mortgage advisor or a financial professional who can assess your specific changes in circumstance before you take any action is highly recommended. They can help you understand the potential impact of your changed circumstances on your mortgage and explore options for a remortgage, renegotiating terms, or seeking alternative solutions that align with your current situation.
Cost of Remortgaging
Even though one of the main benefits of remortgaging is getting better rates and ultimately saving money, there are some fees you need to consider before you decide to do it. The total cost of remortgaging varies from one case to the next, and the fees associated with it can be anywhere from a few hundred to a few thousand dollars.
Here are some potential costs you might encounter when remortgaging.
Description | Average Cost | |
|---|---|---|
Early Repayment Charges (ERCs) | The ERC is a fee your current mortgage lender charges when you ask to repay your mortgage early, usually during a fixed or discounted rate period. This fee is the reason why most borrowers remortgage after the deal period ends. Note that some borrowers increase the size of their new mortgage to cover the ERC cost to avoid paying it in full at once. | Between 1% and 5% of the outstanding mortgage balance |
Exit Fees | Some mortgage lenders charge an exit fee when you pay off your mortgage or switch to a new lender. This fee covers administrative costs and can vary depending on the lender and mortgage terms, but is typically around £50 to £65. Providers that do charge an exit fee charge it regardless of whether you’re switching to a new lender during the deal period or not. | Between £50 and £65 |
Deeds Release Fees | Some providers charge a deeds release fee to release the title deeds of your property once the mortgage is fully repaid. It covers the administrative costs associated with sending the deeds to your new lender. Many providers don’t have a deeds release fee in place. | Between £50 and £300 |
Arrangement Fees | Also called application charges, these fees are charged by the new lender for setting up the mortgage and can vary in amount quite significantly, so be sure to factor them in. Some providers like to offer lower interest rates to lure new customers in but then hit them with excessive arrangement fees to make up for it. They typically are around £1,000, but some deals will require you to pay up to £2,000 for an application fee. As the case is with the ERCs, some borrowers increase the amount of their new mortgage to cover its arrangement fees and don’t have to pay them at once. | Between £1,000 and £2,000 |
Booking Fees | A booking fee is sometimes charged by lenders when you apply for a specific mortgage deal. It is much lower than the arrangement fee - but unlike the arrangement fee, it’s paid when the application is submitted, which means it’s non-refundable, even in cases when the mortgage doesn’t proceed. | Between £100 and £200 |
Valuation Fees | The valuation fees cover the cost of a property valuation, which is required by the new lender to assess the property's current market value. The amount can vary depending on the property's value and the complexity of the valuation. Still, they are generally lower than when you first buy your property, as you won’t need a homebuyer’s report or structural survey when remortgaging. | Up to £400, but note that some lenders do it for free. |
Conveyancing Fees | When remortgaging with a new provider, you will likely need a solicitor or conveyancer to handle the legal aspects of the process. The conveyancing fee covers their services, including searches, legal documentation, and title transfers. Their charge can vary depending on the complexity of the transaction and the solicitor or conveyancer chosen. | Up to £300 |
Broker Fees | If you use a mortgage broker to assist you in finding the best remortgage deal, they may charge a fee for their services. The fee structure can vary, such as a percentage of the loan amount or a flat price, and some brokers may even provide you with mortgage advice for free. | Up to £600, or up to 1% of the mortgage's value. |
Because of all these potential costs, it's essential to evaluate whether the savings or benefits from remortgaging outweigh the fees. In some cases, the costs may be substantial, making it less financially advantageous to proceed with remortgaging.
When Is Remortgaging a Good Idea?
Considering that the primary goal of remortgaging is to save money, any time you see a chance to improve your financial situation can be a good time to do it. There are a number of indicators that can suggest that a remortgage is due, so be on the lookout for:
The end of your mortgage deal – As we already mentioned, getting switched to an SVR is not ideal, so a remortgage can help you improve your rates.
Rising interest rates – Keep an eye on the market and be aware of significant rate changes. If the interest rates are rising and your current can be affected, you can remortgage and switch to a fixed rate to pay less.
Decreasing interest rates – Similarly, if you notice market changes and the currently available rates are significantly lower than when you got your original mortgage, you should consider remortgaging to take advantage of the current market.
The value of your property – If your property value has increased considerably since you got your original mortgage, you may have built up equity, which can be an excellent opportunity to remortgage.
Changes in your circumstance – Notable changes like marriage, divorce, a new job, or starting a family can impact your financial situation. Remortgaging can provide an opportunity to adapt your mortgage in a way that better reflects your current situation than when you got your original mortgage.
Having said that, remember to assess the associated costs carefully and evaluate whether the potential savings outweigh the expenses associated with remortgaging.
To find the best remortgage deal, start by researching and comparing rates offered by different lenders. Utilise online comparison tools, read customer reviews, and consider switching to a mortgage broker who can access a broader range of deals.
Take the total cost of the remortgage into account, including fees and charges. It's advisable to consult with a mortgage advisor who can provide personalised advice based on your situation.
Additionally, consider negotiating with lenders, as you can potentially improve the mortgage terms this way. Remember to assess the long-term benefits and flexibility of the deal beyond just the immediate cost savings.
Finally, be sure always to stay informed about market trends and interest rate movements. Take your time, gather information, and make an informed decision that aligns with your needs and circumstances.
What Are the Steps to Remortgaging?
Understandably, the exact steps to remortgaging vary from one provider to the next, though typically, they involve the following:
Step 1: Review your current mortgage
Step 2: Research and compare mortgage deals
Step 3: Calculate potential savings
Step 4: Seek professional advice
Step 5: Apply for the new mortgage
Now all that is left is for the surveyor and conveyancer to take care of the valuation and legal processes, if necessary. If the lender is satisfied with the valuation and all legal requirements are met, they will issue a mortgage offer.
