In our simple 5 step remortgage guide we explain the remortgage process from start to finish, including how to remortgage, what types of remortgage are available and how long it will take to remortgage.
The most common time to remortgage is when you come to the end of a deal. Most deals will automatically move to a higher standard variable rate (SVR) that the lender can change whenever it wants. Remortgaging will give you access to better deals on the market and give you more freedom to choose the type of product you want such as a fixed rate deal or tracker rate deal.
Mortgage rates have fallen to record lows in recent years with homeowners remortgaging in order to lower their monthly repayments. Even if you are unable to secure a lower rate, a new deal should still be cheaper than staying on a lender’s SVR as these are notoriously high.
A remortgage also provides an opportunity to release cash from the equity tied up in your property.
So how do remortgages work? Here are five simple steps to follow if you want to remortgage your house.
5 simple steps to remortgaging
1. How much do you owe?
The first document you need when working out how to remortgage your home is your current mortgage statement. Your lender should send a mortgage statement to you each year that details how much you have paid each month and how much of the debt is outstanding. This outstanding figure is important for your remortgage as you need your new loan to pay off the existing amount.
It is also good to have an idea of the value of your property as this will be combined with the mortgage amount to give a loan-to-value. This is a different approach to purchasing a property as you are not putting a deposit down but your new lender will still want to know how large a loan you need in comparison to the property value as there may be different criteria on how much they are comfortable lending.
It is also important to check if your property has fallen in value as if you are in negative equity – i.e. the value of your home is lower than the mortgage – it may be harder to remortgage or you may be asked to make up the shortfall. You can check local prices on property websites such as Rightmove and Zoopla. There is a handy tool that you can download as an extension to your chrome browser and it will check to see if prices have been reduced on rightmove. Check out Property Log.
2. What type of mortgage are you looking for?
Consider your reasons for remortgaging and the most suitable mortgage for your needs.
The most common reason for remortgaging is to find a better rate, whether that be cheaper than your current rate or cheaper than the standard variable rate that you may be due to move onto. This would involve simply finding a new mortgage to pay off the old one.
Another use of a remortgage is to withdraw cash from the value of your property (often referred to as equity release). This is done by taking out a larger loan than what is currently owed, paying off the old debt and keeping the excess funds. This money, which is tax-free, can then be used to clear debts, fund home improvements or finance major events such as a wedding. It is important to have an idea of what you want to spend the money on and how much it will cost so you know how much extra to borrow. Getting the numbers right is important as you don't want to be paying interest on a larger loan that you may not have needed.
Once you know your reasons for remortgaging, you need to decide on the most suitable mortgage product. There are two main types of mortgage, a fixed rate or a tracker.
Remortgaging to a fixed rate deal - has a set rate of interest over a defined period such as two or five years. This would give you the security of regular repayments until the deal ends, but you need to consider how long to fix for and look out for extra product fees.
Remortgaging to a tracker deal - tends to follow the Bank of England base rate, which is currently at 0.75% as of May 2019. Your tracker payments will drop if rates are cut but will also rise if they increase. Tracker deals are usually priced lower than fixed rates and can be a good option if you think interest rates will fall, but there is also a risk that they rise and your mortgage repayments increase.
3. Can you afford to remortgage and will you save money?
The prospect of saving money on your mortgage may sound great, but you have to be sure the switch is worth it. If you are in the middle of a deal your current mortgage may have an early repayment charge (ERC) for exiting early. These usually get lower towards the end of a deal, for example, you may have to pay an extra 5% if you leave a five-year fixed rate after one year, 4% after two, 3% after three, 2% after four and then 1% in the final year. In this scenario, it may be better to wait until you get to the end of a deal to remortgage, unless you are making a significant saving with the new rate.
You can get an idea of the best rates on the market by searching comparison websites such as MoneySuperMarket, which will highlight products based on your deposit, property value, deal type and loan-to-value.
However, the rate is only one aspect to think of when getting a new mortgage. There may also be product and legal fees associated with the remortgage product and your bank or mortgage broker could also charge an advice fee. It is therefore worth comparing the overall costs of a remortgage by looking at both the rate and the fees involved.
For example, if you were to remortgage for £150,000, you could get a two-year fixed rate for a current low of 1.68%, with a £995 fee that works out at £15,703.16 over the deal period. But if that mortgage was priced at 2% with no fees, it would actually be £444 cheaper at £15,258.76 over the same period. Therefore, it can sometimes be cheaper to opt for a higher rate in return for lower fees.
Another issue is timing. You don’t have to wait until you get to the end of a deal to start applying for a remortgage. Even if there are ERCs on your current mortgage, many lenders will let you hold an offer for six months or sometimes more. This means you could lock in lower rates on a remortgage sooner rather than later, especially if you think pricing will increase in the coming months. However, if you think mortgage rates will come down then it may be worth waiting until the final couple of months. If there are no ERCs on your deal then you have more flexibility on when to take the remortgage.
You can access several mortgage calculators online to help work out the monthly and overall cost of a deal. The Money Advice Service offers a mortgage cost calculator and you can also compare a number of products using a mortgage calculator created by mortgage broker Habito both of which are in our article ' 3-minute remortgage calculator.'
If you are unsure after all this research whether a remortgage will save you money, it may not be the right time.
4. Seek professional advice
You don’t have to do all this alone though. A mortgage adviser can talk through how various types of product work and how they fit with your needs and lifestyle as well as the various fees and costs. The two main options for mortgage advice is to go directly to a bank or to use a mortgage broker.
Your current lender may have special offers but remember they, as with other banks or building societies, will only be pushing their own products. This risks missing out on other deals across the rest of the mortgage market.
Another option is to use a mortgage adviser, who will typically have a broader view of the market and be able to offer products from a range of lenders. Brokers will also have specialist insight into the lenders that are most likely to approve a remortgage based on your circumstances. Our article 'finding a good mortgage adviser' lists where you can find a mortgage adviser and what to look out for. The advantage of a broker over a bank is that you only have to do an application once and the adviser will then aim to find the best product for you. If your application fails they would still have the same details to try with another lender. In contrast, if one bank rejects your application, you would have to start from the beginning elsewhere. Remember a lender may access your credit report each time you apply.
Rather than trawling through bank branches, websites or visiting the office of a mortgage broker, you could complete the whole process online using an online specialist. Firms such as Habito, Trussle and Mojo provide online mortgage advice that aims to speed up the application process by combining technology and regulated brokers. For example, Habito’s technology tracks every mortgage deal from more than 90 lenders in seconds by linking up with mortgage calculators on other lender websites and using its experts’ own market knowledge.
Habito is able to quickly scan the market based on your requirements and will come up with the best product (based on its algorithm) and therefore the most likely to receive an agreement in principle. You then confirm your requirements over the phone with a mortgage adviser and upload all documents such as proof of identification and income to a secure Habito dashboard. In contrast, a bank or high street mortgage broker may expect you to complete documents and send them via post, which can be more time consuming and less secure.
Having visited Habito's offices and scrutinised their recommendation process, we were impressed to see that when they couldn't find a suitable deal that would save you money, they would recommend that you should stay where you are. Having tried the system for ourself, we can confirm it only takes around 10-15 mins to register online and once done, Habito will be able to start giving you instant, free mortgage advice. Over 2,500 have reviewed Habito on Trustpilot and it is rated as 5 stars. Simply click on the above link and then go to 'Get started'.
5. Apply for the mortgage
Finding the rate and type of mortgage you want is just the beginning. The toughest stage is the mortgage application. It has become increasingly difficult to get a mortgage since the introduction of the Mortgage Market Review in 2014, with lenders imposing stricter affordability assessments and stress testing. This may make it harder to get a mortgage if your circumstances have changed and your income is harder to prove since you last secured a mortgage.
The more organised you can be, the easier and faster your application should be. Banks will want to see around three months of bank statements and payslips that prove your income and outgoings. You will also need to provide your latest mortgage statement or your existing lender may need to send a redemption statement so the new provider knows how much needs to be repaid. The new lender will also arrange a valuation of your property to see if the loan-to-value fits in with its lending criteria.
Your new lender will look at your income and conduct stress testing to see if its underwriters believe you can withstand a hike in repayments. There may also be a mortgage interview to assess your attitude to debt, spending habits and any future costs. Questions have been known to get pretty personal such as how much borrowers spend on eating out or when they plan to have children. This all helps the lender decide how risky or responsible a borrower you are and whether you can afford the remortgage both currently and in the future. In some cases, your mortgage broker may conduct the interview and then provide the information to the most suitable lenders, which can be less grueling than dealing directly with one or several bank branch advisers.
Before you apply you should make sure there are no anomalies on your credit report that could harm your application. Be aware that evidence of multiple applications may harm your credit rating and so it is worth ensuring your finances are up to scratch so that you have a good chance of being approved before starting an official application.
A mortgage broker should be able to highlight lenders that are most likely to approve your application. Many banks and building societies have online calculators that can provide an agreement in principle based on your data without accessing your credit report, this can help decide which banks to target for the highest chance of success.
You will need to provide a start date for your remortgage, which will usually be the day after any ERCs expire and will also depend on all conveyancing – the legal checking of mortgage and identification documents, as well the transfer of the debt – being passed and completed.
The whole remortgage process can take up to two months or longer for more complicated cases, so that needs to be taken into account if you are coming to the end of a deal. Mortgage rates have been at record lows in recent years so whether you want to release some cash from your home or avoid / move off the SVR, what are you waiting for?
- SVR - standard variable rate, the rate at which interest is applied to a mortgage
- ERC - early repayment charge, the fees applied for opting to pay off a mortgage early
- Equity - the portion of the property you own, worked out by subtracting the mortgage from the property value
- Loan-to-value - Also referred to as 'LTV' - Expressed as a percentage, it is the size of mortgage a lender is prepared to offer you, specifically in relation to the total value of the property you are purchasing or remortgaging.
- Remortgage - the transfer of a mortgage from one lender to another
- Mortgage broker - a person/company that arranges mortgages between borrowers and lenders
- Fixed rate deal - the interest rate stays the same throughout the loan term
- Tracker rate deal - a variable rate mortgage that follows the Bank of England's base rate
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