What is a Remortgage?
A remortgage is a mortgage situation whereby you decide to change your existing mortgage to a different type (either with the same lender or with a new lender) or you simply want to renegotiate the terms of your mortgage.
Usually the main purpose of a remortgage is simply to find the best mortgage for your situation at the time and get the most cost effective package available. If your property has significantly gained in value, you might want to remortgage to release the capital to pay for something new such as an extension or simply a holiday.
Why Remortgage?
As mentioned you will almost certainly want to remortgage your property to secure a better deal than you have with your existing lender particularly if you are on their standard variable rate or soon will be. People can save thousands of ￡’s by making sure they are on the best deal for them.
You might want to simply change the type of mortgage you have, for instance if you fear interest rates are going to rise then a fixed rate would protect you from that. Or you might be unhappy with your existing mortgage lender due to a dispute and want to remortgage to a different lender.
Remortgaging is also a way to raise cash. At any point in your life journey, a situation may arise where you need access to some money and you may be lucky enough to have equity locked up in your home. You might want to financially help your family members, make another investment or pay medical bills – there are numerous scenarios.
What type of mortgage can I take out?
Remortgaging with a fixed rate deal
With a fixed rate mortgage, the interest rate stays the same for a set amount of time. Most fixed rate deals run for between two and five years, although some are longer. This is a good option if you want assurance that your repayments will be the same each month.
Remortgaging with a tracker deal
Tracker mortgages have variable rates that track the Bank of England base rate at a set percentage above or below it.
The interest you pay on your monthly mortgage repayments will rise and fall in line with the Bank of England’s base rate. You’ll benefit from a low rate when rates are falling but you’ll need to be sure that you can afford your repayments if rates go up.
Other mortgage types to consider:
Capped Rate Mortgage
A capped rate mortgage is a different type of variable rate mortgage. Whereas standard variable-rate mortgages can rise and fall to any level, capped mortgages have an interest rate ceiling, over which your interest rate cannot rise.
Discounted Mortgage
A discounted mortgage has an interest rate that is ‘discounted’ at a certain level below your mortgage lender’s standard variable rate (SVR), for a set period of time. It works in a similar way to a tracker mortgage, except it tracks a lender’s SVR rather than the Bank of England’s base rate.The mortgage rate will go up and down as the lender’s SVR fluctuates.
Offset Mortgage
An offset mortgage is linked to your current or savings account balance which then reduces the overall interest you need to pay. An offset mortgage can be linked to one or multiple bank or building society accounts.
I own my house outright. Can I remortgage?
If you own your house outright, you can remortgage to release some or all of the cash in your property. How much you can borrow will depend on your income and your outgoings. Lenders will also need to understand what the money will be used for. You can get a rough idea of how much you might be able to borrow using our calculator.
Can I remortgage my house to buy another property?
Becoming a landlord can be a good prospect if you feel property prices are likely to rise or want to benefit from a rental income. Buy to let mortgages can be more difficult to get, usually have higher interest rates than residential mortgages and often require large deposits.
So an alternative option is to remortgage your residential property so that you can buy your second house outright or reduce the amount of mortgage you need from a buy to let lender. You can read our full guide to buy to let to understand this further.
Alternatively if you are thinking of remortgaging your current home with the intention of converting it into a rental property and moving to a new residence, then this is called a let to buy. We suggest you read our guide to let to buy to fully understand the mechanics of this as it can be a complicated process without help.
If this is something you are considering then seek expert advice from one of our mortgage brokers to determine whether this could be an option for you.
Can I remortgage my house to change my existing mortgage type?
Yes definitely and this is one of the most common reasons for remortgaging. If you already have a mortgage, sometimes your changing lifestyle and requirements mean that your mortgage no longer suits your needs.
You might be seeking a better interest rate to lower your monthly payments, you might seek to fix your rates against future increases in a turbulent market or you might be looking to change your mortgage term.
When is the best time to remortgage?
Although you could remortgage at any time, you should do it when there will be a positive advantage to do so. Here are the most common situations to remortgage.
1. Your current mortgage term has almost finished
At the end of your current mortgage deal term, you’ll be put on your lender’s SVR, which is usually higher. Remortgaging can help you stay on a better interest rate.
2. When you’re on a high interest rate
If the Bank of England base rate rises and you’re on a variable rate mortgage, your monthly mortgage repayments will increase. This is a good time to remortgage to find a more competitive deal.
3. To make mortgage overpayments
If your current lender restricts or doesn’t allow overpayments, you could remortgage to find a lender that allows it or that is more flexible.
4. To release equity
You may want to release equity from your property to pay for home improvements or to settle other debts.
5. When your property value increases
If your property value has increased, you will have a lower loan-to-value which means you might qualify for a better interest rate.
When not to Remortgage?
Although remortgaging can have many benefits, sometimes it isn’t advised to do so.
Some scenarios include:
1. You already have a good deal
If you are already on a good deal, it might not be worth moving. Speak to one of our advisers for expert advice about whether remortgaging might benefit you.
2. You’ve almost paid off your mortgage
When your mortgage debt is small it may not be worth switching lender because you are less likely to make a saving if the remortgage fees are high. It might be better for you to stay on your current rate and avoid any further fees.
3. Your home has lost value
If the value of your property goes down, you will be assessed for your new mortgage on a higher loan to value (LTV), which reduces your chances of successfully remortgaging.
4. High early repayment charges
If you redraw from your current mortgage deal before the term is up, it could well come with hefty early repayment charges and you might not gain from switching. Do your sums carefully.
5. Your finances have decreased
If your income has dropped since you last applied for a mortgage or your expenses have increased significantly, remortgaging will expose this and your lender might be cautious about lending you the money.
6. Your circumstances change
It might not be possible to remortgage if your circumstances have changed since you entered into your mortgage agreement. For example, if you stop work and become self-employed you might struggle to prove your earnings.
How do I Remortgage?
Ok so you know the time is right to remortgage and grab a better deal! But ‘how do I remortgage?’, the next part of our remortgage guide will walk you through the various steps.
How much can I borrow?
The first thing you need to do once you’ve decided that you’re going to remortgage, and are ready to start the mortgage process, is work out how much you are likely to be able to afford to borrow this time around.
Remember, it is not just your financial situation that may have changed, lending policies and regulation may well have done too. So it is not a given that you can borrow the same amount as you did when you took your last mortgage deal.
You can use our borrowing calculator to get a rough idea but for an exact answer you will need to speak with one of our advisers.
Applying for a mortgage
Collate your paperwork
A mortgage lender will require you to submit an extensive list of documents with your remortgage application to prove everything you have told them is accurate. Click here to read our ‘what do you need to get a mortgage?’ guide which outlines the paperwork and documents you will need.
Speak to a mortgage adviser and choose a mortgage product
You can of course go directly to a mortgage lender but using a mortgage broker such as ourselves widens your access to a much larger range of options. We will assess your individual circumstances, check through affordability and recommend the most suitable mortgage for you.
Our advisers will then be on hand to manage the remortgage application process from end to end and be the point of contact between you and the chosen lender. The best part is that our service is totally free.
Make a formal remortgage application
After you have agreed on the best remortgage deal for you then you need to make your application to the lender. This involves giving the lender various personal and financial details, credit scoring and submitting your financial paperwork for review.
It is at this stage that you may be required to pay some fees to your chosen mortgage provider depending on the details of the individual mortgage product. Fortunately with a remortgage it is quite common to be offered a free basic mortgage valuation and a free basic legal work package.
What happens after you have submitted your mortgage application?
In very much the same way as an application to purchase a property, the lender will assign an underwriter to your application who will take some time to consider your remortgage application. Your employment history, credit history, the property you are remortgaging and the amount you want to borrow will all be reviewed again.
The underwriter will also verify the documentation you provided in your application. They may ask for additional information or documentation to be supplied if anything is not clear or requires further clarification.
What about the Property Survey?
When remortgaging the property survey process can be a little different. If you have a lot of equity and overall the application does not seem to risky then the lender may not send a surveyor to your home.
Instead they may conduct a ‘drive by’ valuation, where they simply have a look from the street, or a ‘desktop valuation’, where they estimate the value using some computer software. Of course they may still send someone in person but either way, it is common for this to be free of charge.
The Mortgage Offer
If the lender is happy with the contents of your remortgage application and the property valuation was agreed to be high enough then you will receive a formal mortgage offer in writing. If the valuation has come back lower than expected then you may be able to choose another mortgage rate with the lender that fits in with their assessed level of equity.
The mortgage offer represents the end of the mortgage application process as it is a binding and formal agreement from the lender to offer you the necessary funds. This offer will usually be valid for between 3-6 months so as mentioned earlier in the guide, it is possible to reserve a rate in advance.
How long does it take to get a remortgage application approved?
In some cases the remortgage process can be completed in just a matter of days. However, on average it typically takes between 2-6 weeks to see the process out from start to finish depending on the complexity of your application and whether additional information is requested by the underwriter.
Some lenders are considerably faster than others and average processing times change day to day depending on various factors. If timescales are a concern then it is even more important to seek help as our advisers will have up to date knowledge or which lenders to recommend for a speedy turn around.
Completion
With the mortgage offer in hand, your conveyancer will be able to prepare for completion. Funds will be taken from the new lender and sent to your old lender to repay the previous loan.
Pros and Cons of Remortgage
- Potential for a better rate than your lender’s standard variable rate. When your current mortgage deal comes to an end, it may be better to remortgage to a new deal rather than reverting to your lender’s standard variable rate.
- More choice. You may be able to get better rates and a better deal with a different mortgage. Compare rules about overpaying, reducing your mortgage term and your remortgage fees.
- Free up money. Remortgaging could make money available for home improvement or to pay off other debt.
- You will need to complete affordability tests. As with new mortgages, a remortgage with a new lender will require you to complete an affordability test.
- You will need to be in good financial shape. Your lender will check your current credit score.
- Additional mortgage fees. When you remortgage, you usually have to pay a new product fee, and valuation and legal expenses if you change providers.
Final Considerations
It can pay to be vigilant and to consider other mortgage options on a regular basis. Remortgaging is common practice nowadays much like shopping around for new energy or utility providers. You can definitely benefit from shopping around to see if you can get a better deal.
Run a search now on our mortgage comparison tool to see which remortgage products are currently available and then speak to one of our expert advisers.
