How much can I remortgage my house for and what is the cost?
This has become an increasingly popular option as homeowners decide to improve rather than move from their current abode due to high house prices and stamp duty.
But remortgaging is no longer as easy as just switching your current mortgage and taking advantage of any increased equity in your home. That's why it pays to seek the advice of an independent mortgage adviser who can secure the best remortgage deal for you. If you don't know a mortgage adviser whose opinion you trust, then you can get your mortgage reviewed for free online through Habito, one of the first online mortgage brokers in the UK and regulated by the FCA. I've personally been into Habito's offices to grill them over their proposition and recommendation process and was impressed. Habito checks over 20,000 mortgages from more than 90 mortgage lenders for you before making a recommendation. The whole process can be carried out online and over the phone (without the need for face-to-face meetings).
Alternatively, follow these simple steps to secure a free mortgage review in 30 seconds from a vetted traditional (non-digital) FCA regulated mortgage professional near you.
How does remortgaging work
Your mortgage is most probably the most expensive outgoing in your bank account. This cost can be drastically reduced with a remortgage, letting you move to a cheaper rate than your existing deal. It is worth asking your existing lender about remortgage deals as it may have preferential rates for existing customers but it is also worth shopping around so you can compare the costs.
A new lender, or even your existing bank or building society would look at how much is left to pay on your current deal, the value of your property and your income and expenses and will come up with a new package that will essentially pay off and replace your old one.
Homeowners can remortgage at any time. The most common reason is usually to move to a cheaper interest rate once a deal has come to an end. This would typically mean remortgaging for the amount that is still owed on your current mortgage.
But there are other uses to a remortgage. You could also use it to release cash. You can remortgage for home improvements, to build an extension, to pay off debts or even to buy another house if you have enough equity in your current home or can borrow enough.
In these cases, you would need to take out a bigger mortgage than what you are currently borrowing and would drawdown the portion above what is needed to cover your own property for yourself. The rest would become your new mortgage.
As you are taking a larger loan you would end up paying a more expensive rate on your mortgage but this is a good way of releasing cash that has become tied up in your home if your house price has risen in recent years.
When you should consider remortgaging
Most mortgage borrowers remortgage at the end of a deal term. This is to avoid moving onto the typically high standard variable rates (SVR.)
There are also homeowners who mistakenly stick with their SVR due to inertia. The average SVR at the start of 2018 was 4.29% according to Bank of England data, while you can get fixed rates for under 1.5%, so there are big savings to be made and you could almost halve your monthly repayments.
It is also a good idea to consider remortgaging when you think interest rates and mortgage pricing may go up. This is especially important for those on tracker mortgages that follow the Bank of England base rate. Arranging a remortgage early before the hikes come in can help save you money.
The base rate, or interest rates, are a key factor in the cost of credit and determine pricing of credit such as mortgages. If the Bank of England raises interest rates, those on tracker deals would see their costs rise, while mortgage lenders could also increase their pricing on both their fixed rates and trackers as the cost of funding on the wholesale markets may also be pushed higher.
It is also worth considering a remortgage when you have a big event such as a wedding or project such as home improvements to spend money on. Rather than raiding your savings, you could benefit from the increase in your property to take some cash out.
This would result in a larger mortgage and higher interest rate so it is only really worth it if your home has gone up by quite a lot and you can release a significant amount, and obviously if you can afford the repayments.
When you should not consider remortgaging
The grass may seem greener on the other side, but sometimes it may be more restrictive to move from your current deal if you are only a year or so into it.
Most fixed rate mortgages have early repayment charges if you leave before the end of the deal term. These can be up to 5% of the outstanding value of the mortgage. There will also be legal, survey and possible broker fees for arranging the remortgage. If all these costs outweigh the savings, then it may not be worth considering a remortgage.
How much can you borrow when remortgaging?
A homeowner would typically borrow the equivalent amount that is outstanding on their current loan for a remortgage if you are switching to a new rate, but they may borrow more if using the product to release cash. Whatever the money is used for, a remortgage is treated as a new mortgage application.
This may come as a shock to anyone who hasn’t switched rates since tougher application rules came in during 2014 under the Mortgage Market Review. Lenders are now stricter on income requirements and will also undertake interest rate stress tests to assess if you can cope with a steep rise in the cost of your mortgage.
Your chosen bank or building society would look at your application and your income, expenses and credit rating, as well as the value of your current home to decide how much you can remortgage your house for.
This is where it gets a bit tricky. Your proposed lender can’t dispute how much is left to pay on your current mortgage, but this is only a starting point for deciding how much you can remortgage your house for.
The lender will want to conduct their own valuation of your home and if there are disputes over the value of your property this could affect the loan-to-value (LTV.) A lender may insist on lending you less if you hit their own LTV limits or they could say you need to make up any shortfall.
How much does it cost to remortgage?
Remortgaging may get you a cheaper rate but it also comes with costs. When shopping around for the best remortgage deals you have to consider any arrangement or product fees the lender charges as well as the cost of conveyancing and surveys to complete the transaction.
Your current lender may charge an exit fee if you switch before the end of a deal, but there is usually nothing to pay if you have come to the end of a fixed rate. If you use a mortgage adviser to arrange your deal there may also be broker fees.
Things to consider when deciding to remortgage?
Your remortgage will give you a new rate and monthly amount to repay each month so you need to ensure you can afford it.
It is best to seek remortgage advice or use a remortgage calculator that will show you how much a new deal would cost and compare with other deals. Broker London & Country has a useful remortgage calculator that lets you compare two rates at a time.
The rate is an important factor, but also consider any fees associated with the new mortgage as this will push up the cost.
You should also think about the type of product you remortgage to. A two-year fixed rate is likely to be the cheapest but may have high fees and you could end up with more expensive deals when it comes to remortgaging again at the end of the term. Alternatively, a five-year fixed rate gives you longer-term security but there is the risk that rates and pricing fall during that period so you may feel that you are paying too much and lost out on better deals.
The value of your home is important when deciding to remortgage as this will dictate the LTV. You may think your property has soared in value, giving you lots of equity, but lenders will have their own policies on the maximum LTV they will lend. They may value your property differently to you and this could mean taking out a mortgage for longer or making up any shortfall to give the lender more security.
Alternatives to remortgaging?
A remortgage isn’t the only option if you just want to release cash from your property. Personal loan rates have also fallen to record lows in recent years and you can usually borrow up to £30,000 for up to 3%.
It is worth weighing up the costs and benefits of getting a personal loan or remortgage. There is usually a choice of repaying a personal loan over one, two or five years, whereas a mortgage is worked out over a longer period often for 30 years or more. This makes paying off a remortgage cheaper over the long term, but the process of getting a personal loan is slightly less tricky.
Lenders will typically use your credit report and will ask some questions about your income and expenditure but there won’t be any of the stress tests you get with a mortgage application.
The application process for a personal loan can also be faster. Much of it is done online so often decisions can be made online in minutes and you could receive the funds within a few days. In comparison, a mortgage interview can take around two hours and then you may have to wait around a month while the lender processes the application through its compliance department and values your property before coming back with an offer.
A personal loan is generally faster as they are for lower amounts and are unsecured so there is no property to value. There are also more options for personal loans as you could get one from a bank or building society or even through a peer-to-peer platform. You may not always be offered the advertised rate on a personal loan though as lenders only have to supply this to 51% of applicants.