Homeowners have the opportunity to save money by changing their existing mortgage and seeing if they can get a better remortgage deal with a different mortgage lender. In this article we look at how to remortgage your home and ensure you secure the best rate on your new mortgage deal.
We are regularly encouraged to shop around for car insurance or holiday cover, but the same should also be true when it comes to your mortgage. A mortgage will be the biggest expense in most households so any opportunities to remortgage to get the best rate should be taken. Many borrowers have managed to move onto some of the best remortgage rates in recent years as prices have been at record lows thanks to the rock-bottom Bank of England base rate.
So now may be your best chance to seek remortgage advice in order to secure the best rates. If you don’t already have a mortgage adviser that you trust then you can get a free mortgage review in 30 seconds from a vetted FCA regulated mortgage professional. Typically the free remortgage check saves people around £80 per month per £100,000 of mortgage.
If you are thinking about remortgaging and don't have the time to find the best mortgage deal or know how to find a lender that will lend to you then the free mortgage review will tell you your best optionGet your free mortgage review
What is remortgaging?
A remortgage provides a new product to cover the cost of your home loan.
The main reason most people remortgage is to lower their monthly mortgage repayments. This could also be a because they are moving from a tracker deal to a fixed rate to lock in to the best fixed rates or if they are coming to the end of a deal and want to avoid being stuck on a lender’s more pricey standard variable rate (SVR) that most mortgage products move to on expiry.
Many borrowers fail to shop around at the end of their deals, which can mean paying a lot more than necessary on an SVR. For example:
- a 30-mortgage of £200,000 on the average SVR of 4.29%, according to Bank of England data, would cost £1,087 a month.
- In comparison, a competitive mortgage rate at the start of 2021 was 1.41%, and the same mortgage would cost £791 a month using this price.
That is a saving of almost £300 a month and it shows why it is important to get remortgage advice and shop around for the best deal.
Homeowners can also remortgage to release cash. This usually means taking advantage of the value of your home increasing by releasing that extra equity and taking on a bigger loan. This will result in higher monthly repayments but you will then have some money that can be used to fund an extension or pay off debts.
How long does it take to remortgage?
Many banks and mortgage brokers advise that it can take up to two months to get a remortgage granted. It is important to get the timing right so you can move from one deal to the other and not be placed onto a lender’s SVR.
You will need to the find the most recent mortgage valuation statement from your current lender. This 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. You can then use this data when applying with new lenders.
Arranging a remortgage isn’t as easy as it used to be. There are tougher application rules since the introduction of the Mortgage Market Review in 2014, which imposed strict affordability and interest rate stress tests. In many cases lenders will treat it as a new loan so your credit history will be checked and you will need to prove your income and face tough questions on your future spending.
This could be problematic if you have become self-employed since taking out your previous loan as there may be different income requirements. Some lenders will only accept a minimum of two years of accounts.
Mortgage lenders will also stress test all applicants on how they could cope with a major rise in their repayments.
There have been complaints that these procedures are too strict, unrealistic and intrusive so it is important to be prepared and have evidence of income and check your credit report to ensure there are no irregularities.
Your home will also have to be valued again and if the remortgage is approved, you will receive a new mortgage offer and your old lender will need to provide a redemption statement.
Essentially your old mortgage should be paid off by your new mortgage – or you will need to meet any surplus – and you then payoff the new debt on hopefully a cheaper rate.
How much does it cost to remortgage?
There are a number of costs associated with a remortgage and all should be factored into the overall price of moving your home loan. If you leave a fixed rate before the end of the deal term there may be exit fees, known as early redemption charges, to pay. These charges vary but are usually higher if you leave a deal nearer the start and get cheaper towards the end.
Mortgage brokers may charge a fee for arranging your remortgage, while your new lender may also have a product fee as well as costs for legal and valuation work. The cheapest remortgages aren’t necessarily those with the lower rates. Often these can have the highest fees so it is worth weighing up both the rate and fees.
For example, if you took the £200,000 home loan again on a 2-year fixed rate and added a £995 fee to the low 1.41% deal, the total cost over the 2 years would be £19,989.63.
But if that mortgage was priced at 2% with no fees, it would be £793 cheaper, at £19.196 over the same period.
Who can remortgage?
It is not just homeowners who can remortgage. You can also get a remortgage if you own a buy-to-let property. In both cases the lender will need to be confident that the loan can be repaid and landlords are also facing tougher affordability criteria and stress tests, particularly those with four or more properties.
Buy-to-let lenders will typically want the rent to cover mortgage interest payments up to a certain ratio, typically around 125 per cent.
Is now a good time to remortgage?
Banks and building societies have been able to offer low rates since the end of the financial crisis, when the Bank of England dropped interest rates to stimulate the market. Rates became more competitive when the base rate dropped again in March 2020 to 0.1% in response to the pandemic.
At the start of 2021, the government introduced its mortgage guarantee scheme, which was designed to incentivise lenders to return to offering 95% LTV mortgages. This primarily helped first-time buyers rather than those looking to remortgage, but was also useful for those remortgaging with little equity in their property.
It is unclear what will happen to mortgage rates over the coming months. As inflation is beginning to edge up in the post-pandemic recovery, there is speculation that interest rates could rise to help keep it under control. However, the government will be wary of stifling growth too much, as well as being mindful of the impact of increased interest rates on its own debt repayments.
How to get the best remortgage deal?
It is important to shop around for the best remortgage deals available. Don’t just accept what your current lender offers you. If may also seem easy just to walk into your local bank branch, but remember these advisers will only be promoting what their own employer offers.
You could also check comparison websites for an idea of the best deals on the market but there is a big difference between what comes up in a search engine and what you can actually borrow.
For most people, their best bet may be a mortgage broker as they will have an overview of the market and the best types of loans for particular types of borrower as well as a access to some that aren’t online or available direct. They can also help prepare your application to ensure you don’t waste time with lenders who won’t lend to you anyway. Mortgage brokers receive a procurement fee from a lender when completing a loan.
Some will charge a separate cost for the work, although you may find fee-free brokers. If you don’t already have a mortgage broker you can trust you can get a free mortgage review in 30 seconds from a vetted FCA regulated mortgage professional.
Always remember that you need to compare the best remortgage deals by price as well as the length of the deal. Two-year fixed rates are typically cheaper but you have to consider what mortgage pricing will be like at the end of the deal and if you will end up coming to the end of a deal just as rates rise.
Alternatively, a 5-year fixed rate gives you longer security over what you will pay for your mortgage and you also pay fewer broker and product fees, but you also risk rates going down over that period and losing out on better deals.
The best remortgage calculator we’ve found
You don’t have to start with a mortgage broker if you are just curious about how much you will save. If you already know how much you owe and your current rate then there are plenty of mortgage calculators online that will give you an idea of the savings available.
For example, this remortgage calculator will ask you how much your current deal is worth and you can then compare with different rates.
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