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.
A remortgage lets you move your existing mortgage to a new and often cheaper rate and can even be used to release cash from the equity in your property.
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), which 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 fell 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) Work out how much 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 – 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.
2) Decide what type of mortgage you are 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 is one that is cheaper than your current rate or cheaper than the SVR you may be due to move to. 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.
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 for exiting early. These usually get lower towards the end of a deal, so it may be better to wait 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 using our mortgage best-buy tool, powered by Habito*. This 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.
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 early repayment charges 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.
4) Seek professional advice
A mortgage adviser can talk you through how various types of product work and how they fit with your needs and lifestyle as well as the various fees and costs. 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.
Brokers will also have specialist insight into the lenders that are most likely to approve a remortgage based on your circumstances. Rather than trawling through bank branches, websites or visiting the office of a mortgage broker, you could complete the whole process using an online specialist. Firms such as Habito*, Trussle and Mojo Mortgages 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.
5) Apply for the mortgage
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' 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 gruelling 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.
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.