What is a remortgage?
Many long-term borrowers who arranged their mortgage some years ago on their lender's standard variable interest rate (SVR) could reduce their monthly payments substantially by remortgaging to a low fixed-rate mortgage.
In this article, we look at the financial aspect of remortgaging and use some examples to see how much money you could save on your monthly outgoings.
Should you remortgage?
There are several reasons why it may be worth remortgaging, such as:
- Moving to a better fixed-rate deal - you are currently on a standard variable rate mortgage with your lender and feel you could reduce your outgoings (and be able to budget better) by moving to a lower fixed-rate mortgage deal
- To avoid moving on to the lender's standard variable rate - you are nearing the end of your current fixed-rate mortgage deal and when this ends you will be moved onto your lender's standard variable rate at a higher rate
- Home improvements - you need to raise additional funds for home improvements or other large purchase
- Better rates due to lower loan to value ratio - your property value has increased and you may qualify for a wider range of mortgage deals at lower rates because of the reduced loan to value (LTV)
- Circumstances have improved - your personal circumstances may have improved since you started your current mortgage which could result in a wider range of mortgage deals available to you
There are also some things to be aware of before you go ahead and remortgage, such as:
- Cost - the costs involved in remortgaging can be high, especially if you change lenders (rather than remaining with your current lender). In some cases, these costs could negate the benefits of remortgaging. Also, if your current mortgage debt is low then it may not be worthwhile remortgaging as the costs involved may outweigh any savings on your monthly repayments
- Circumstances - if you remortgage with another lender your income and expenditure will be analysed closely, together with a credit check and survey on your property. This could uncover issues if your circumstances have changed since obtaining the original mortgage
- Timeframe - if you change lenders when remortgaging the whole process may take a couple of months so you need to start arranging your remortgage well ahead of any current fixed-rate deal expiring
How much can you save remortgaging?
How much you can save by remortgaging will depend on your current mortgage deal and whether you are on a fixed-rate mortgage or a standard variable rate mortgage. Fixed-rate mortgages will normally work out cheaper as they are often used by lenders to attract new customers. Rather than switching mortgage providers, you may want to consider switching to a different product with the same lender when your fixed-rate deal comes to an end as this can often be quicker and easier than switching lenders.
Before you start researching remortgage deals you will need to take the following steps:
- Find out the full details of your current mortgage including: monthly repayments, the remaining term of your current mortgage deal and any redemption penalty that may be imposed
- Check your credit report - How to check your credit report in 5 mins
- Find out the best remortgage deal with your current lender to use as a comparison
Once you have this information you can then start looking for the best remortgage deal for your circumstances.
How to get the best remortgage deal?
Finding the remortgage deal best suited to your circumstances is fairly straightforward and we have teamed up with Habito*, one of the first online mortgage brokers on the market who charge no brokerage fee for their services.
In partnership with Habito, we have created our Mortgage Best Buy Table* which provides a simple way of finding the best mortgage or remortgage deal for your circumstances. By entering a few details about your remortgage requirements you will be presented with a range of deals that can then be sorted by monthly repayment, lender's fee or total cost over the selected term.
Once you have entered your details and sourced a range of remortgage options you need to look at the options closely to ensure you get the best deal. It may be tempting to just go for the lowest monthly repayment but there may be a high arrangement fee with that deal so it is important to check the overall cost as that deal may be more expensive.
The examples below show how it is important to look at each remortgage deal in detail to find the best one for your circumstances.
Example A- 2 year fixed-rate remortgage
Remortgage amount - £160,000
Property value - £200,000
Term - 20 years
| 2 year fixed-rate | Lender A | Lender B |
| Monthly payments | £923 | £927 |
| Interest rate | 3.44% | 3.49% |
| Arrangement fee | £309 | £2,347 |
| Total cost over fixed-rate term | £22,802 | £24,598 |
| Saving over the fixed-rate term | £1,796 |
In the example above both remortgage deals appear very similar with little difference in the monthly payments or the interest rates. However, when you look at the arrangement fees you can see that with Lender B the fee charged is over £2,000 more than Lender A, leaving you £1,796 worse off over the 2 year term (when you include all the fees).
Example B - 3 year fixed-rate remortgage
Remortgage amount - £160,000
Property value - £200,000
Term - 20 years
| 3 year fixed-rate | Lender A | Lender B |
| Monthly payments | £848 | £882 |
| Interest rate | 2.50% | 2.93% |
| Arrangement fee | £73 | £1,964 |
| Total cost over foxed-rate term | £30,595 | £33,707 |
| Saving over fixed-rate term | £3,112 |
In the example above both remortgage deals appear very similar with little difference in the monthly payments or the interest rates. However, when you look at the arrangement fees you can see that with Lender B the fee charged is almost £1,900 more than Lender A leaving you £3,112 worse off over the 3 year term (when you include all the fees).
Note - The above information is supplied by Habito and these deals were available at the time of writing this article.
Additional costs to consider when remortgaging
When remortgaging you need to factor in the additional costs listed below. These costs are an important consideration as they can make a remortgage unviable from a financial viewpoint.
Arrangement fee
This fee is usually charged by the new lender to cover the costs of administering the mortgage. It varies between lenders from a few pounds to over £1,000 so you need to check the arrangement fee when researching remortgage deals. If you remain with your current lender then this fee may be waived.
Valuation fee
This fee is charged to carry out a survey of your property and costs £200-£500 depending on the value of the property.
Legal fees
This covers the cost of the legal paperwork and searches involved in remortgaging and will be around £1,500 but may be less if you remain with your current lender.
Redemption fee
If you leave your current mortgage deal before the end of a fixed-rate or discount-rate term you may be charged a redemption fee which varies between lender.
Summary
The amount you can save by remortgaging will differ depending on a number of factors including the type of deal you are on, the lender you are with and any associated fees. One thing is clear, however, that understanding the various deals available and the costs involved are essential in making sure you maximise the savings available when remortgaging.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses or take advantage of any exclusive offers - Habito
