Remortgaging lets you pay off your current mortgage and move to a new and typically cheaper deal. It also provides an opportunity to release cash tied up in the equity of your property.
Moving such a big loan may sound like a lot of work, but the time and effort can be worth it once you have lowered your monthly repayments or accessed funds to pay for those big expenses.
When is the best time to remortgage?
The best time to remortgage depends on your circumstances but the most common time to remortgage is when you come to the end of a deal. Typically, once a mortgage deal such as a fixed rate ends, it will move to a standard variable rate (SVR). An SVR is set by the bank and is much higher than the rates on offer to the public.
For example, mortgage rates have hit record lows in recent months and as of May 2019, you could get a two-year fixed rate for an average of 1.68%. The monthly payments for a £150,000 mortgage over 25 years on this rate would be £613 but would move to a typical SVR of 4.99% at the end of the deal period, pushing up your repayments to £868 a month. This is an increase of £3,000 over a year. Rather than accepting this, you could arrange a remortgage before your current deal comes to an end so you are ready to move to a better rate straight away.
You don’t always have to wait for the end of your mortgage to move to a new deal. If there are no early repayment charges (ERCs) to pay, you could exit your deal at any point if you can lower your costs with a different rate. It may still be worth switching even if there are ERCs if the savings outweigh any exit penalties. You can use this mortgage calculator to assess the overall cost of a mortgage, including any product fees. You will then need to check your mortgage documentation to see what the ERC will be and work out how much it costs to leave and whether you are still making a saving with a new deal.
Moving to a new rate isn’t the only reason to remortgage. You could use it to release equity in your property so you can access tax-free cash to spend on anything from a new car, to home improvements or major events such as a wedding. This would involve taking a bigger loan to pay off the old debt and then taking the excess amount as cash. Taking a larger loan will mean it takes longer to repay your debt, plus it may mean paying a higher rate.
How long does remortgaging take?
The remortgage timescale typically takes up to two months. Make sure you get the timing right if you are remortgaging before the end of a deal as you need to have enough time to avoid moving onto the more expensive SVR.
The timescale will depend on how complicated your application is. A remortgage is treated as a new application so you need to go through a mortgage interview and the lender will want to conduct a valuation on your property.
New mortgage regulations introduced in 2014 have made the application tougher, with lenders stricter on income and affordability assessments. They will also apply stress tests to see whether you can still afford the mortgage if the rate increases. This may make it harder to get a remortgage if your income or job has changed since you last got your mortgage, especially if you have become self-employed as lenders are tougher on provable income.
Any discrepancies in the valuation may hold up the process as a lender may be more cautious about lending above a certain loan-to-value. There may also be issues if the property value has fallen below what is left on the current mortgage and you may have to make up the shortfall or wait for the price to recover.
The legal or conveyancing work may also hold up the process as lawyers complete the required Land Registry, property and financial information required. A remortgage can be faster if you use your existing lender as it will be treated as a product transfer so you may not need any extra legal work.
How long does it take to release equity and receive the money?
If you are looking to release equity built up in your property then remortgaging is a simple way to do this. Once equity built up in your property has been released then you are free to spend this money wherever you want. If you are remortgaging to a cheaper interest rate then it may be possible to release some equity and keep your monthly mortgage payments similar or even lower than you are currently paying.
If you are looking to release equity by way of a remortgage then it can take between 4 and 8 weeks to complete this transaction and receive the money. This period could be longer if there are complications with your application or you switch lenders
The steps to remortgaging
So how does remortgaging a house work?
To begin with, you will need to find the most recent mortgage valuation statement from your current lender. You should have received this each year and it will tell you how much is owed on the home loan, what product you are on and how many years are left on the mortgage.
Now you need to find a new deal. Your current lender will most probably start sending you letters or emails highlighting its product range and offers for when your existing deal ends, but it is also worth shopping around to see if you can get better rates.
You can check what rates are on the market using comparison websites. Use the figures from your mortgage valuation statement to enter how much you need to remortgage and choose whether you want a fixed or tracker deal. The loan amount will need to cover the existing mortgage to pay it off but you may also want extra if you would like to withdraw some equity from your property as cash.
Remember, a comparison website will only tell you what rates are available on the market, but it won’t give you a sense of your chances of success when you make an application.
Each time you apply for a mortgage, or any type of loan, your credit report is checked by the provider. Too many searches can look bad, so it is best to apply for a mortgage that you have the best chance of getting. A lot of mortgage lenders have online calculators that can provide a mortgage in principle, but again that is limited to their own range. Alternatively, a mortgage broker could help you search the whole market for the best mortgage deal and may also be able to help prepare your application and have knowledge of the most suitable offers for your needs. Using a mortgage broker means you only need to do one interview to assess your income and affordability, whereas you would need to do several if you approach each bank individually. The interview can be pretty arduous due to the tough mortgage regulations, so a broker or lender will want to get an idea on your current and future spending and how you plan to repay if interest rates increase so they know how reliable a borrower you will be. If you don't have a mortgage adviser already you can request a free mortgage review from an FCA regulated adviser*. Alternatively you can use an online broker such as Habito* who will will check through over 20,000 mortgages from more than 90 mortgage lenders before making a recommendation.
Once you have identified the deal you would like, you (or your mortgage broker) will need to complete a full paper or online application with the lender that sets out your personal and property details, the loan amount required and where any excess cash should be sent once the old mortgage is paid off.
If approved, it is then time for the lawyers or conveyancers to take over. They will ask you to provide a completion date, which should be after any early repayment charges expire and before your current rate moves to the expensive SVR, which is typically the day after the deal ends. You also need to choose when you want to start making repayments. It is best to schedule these just after your monthly salary is paid.
Your lawyer will need to get a redemption statement from your old lender so they know how much needs to be paid off and register the relevant documents with the Land Registry so there is a record of which mortgage lender holds a charge over your property and how much it is worth. You will also need to complete ID checks to verify who you are and that you own the property. The old mortgage should be paid off by the new mortgage on the day you initially indicated and any surplus funds sent to your bank account.
How much does it cost to remortgage?
Remortgaging may save you money on your monthly repayments by moving to a lower rate, but there are a number of costs attached which should be factored into the overall price of moving your home loan.
A remortgage may have a product fee, which can range from the low hundreds into thousands of pounds. Additionally, a mortgage broker may charge you for their services. There may also be legal and valuation fees to pay or ERCs to leave early. Sometimes it can be worth paying these for a decent rate and to have the help of an expert mortgage adviser or conveyancer on your side.
Do you need a solicitor to remortgage?
You only need a solicitor if you are remortgaging to a new lender. If you remortgage with your current lender it will be treated as a product transfer. The bank or building society already knows who you are so there is no extra legal work to do beyond altering the Land Registry data on the value of your loan secured in your property.
In contrast, if you move to a new lender there will need to be conveyancing work done to confirm your identity and that you own the property and to reflect the new lender and loan amount on your property documents.
Many banks will offer free legal services if you use their own solicitors. Check who the provider is and the type of customer reviews they have as it could be worth paying extra for someone who you know will do a decent and efficient job.
Should you speak to a mortgage broker?
Your current lender is likely to be the first out of the blocks to offer you new deals when you are coming to the end of your current one. There is no requirement to stay with them. A bank adviser will only ever offer their own brand’s products, so you could be missing out on better deals elsewhere.
Alternatively, a mortgage broker can provide an overview of the wider mortgage market and make recommendations based on your requirements. You will only have to do one mortgage interview with them rather than several with different lenders and you may just be able to do it on the phone or even online using robo-brokers such as Habito*. Another advantage of a broker is that they may have specialist knowledge of the most suitable lender for your needs and can also help you through the tough application process, which will save you time and reduce the chances of getting a no from the bank.
Can you apply for a remortgage in advance?
You don’t have to wait for your mortgage to expire to start applying for a new one. It is best to start two to three months early to avoid falling onto the SVR. Many lenders will also let you hold a mortgage offer for up to six months and sometimes more. This can be beneficial if rates are particularly low and you want to lock-in a decent deal before the pricing increases.
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