What does it mean to remortgage?
A remortgage is the process of switching the mortgage on a property you already own from one mortgage deal to another, either with your current lender or a new lender.
If you remortgage with your existing lender then it will be a simple process of changing from one deal to another providing you have not currently got, or had, arrears on your current mortgage. If you are looking to remortgage with a different lender then the process will be the same as applying for a brand new mortgage with all the property, legal and credit checking work involved.
Should I remortgage?
Here are a number of reasons why a remortgage may be worth considering:
- Your current mortgage deal is coming to an end and your mortgage will be moved onto your lender's standard variable rate (SVR) which in most cases will be higher than the interest rate being charged on your current mortgage
- You are looking to reduce your monthly mortgage payments by moving to a lower interest rate
- You are on a variable-rate mortgage and feel you would be able to budget better if you moved to a fixed-rate mortgage where the payments were fixed for a period of time
- You want to borrow more money to finance home improvements or some other major expense
- The value of your property has increased and you may qualify for a lower loan-to-value (LTV) mortgage with a cheaper rate
Should I remortgage with the same lender?
You can remortgage with your current lender avoiding the need to pay for a valuation and any legal work as this would have been completed when you arranged your existing mortgage. You may also save on any redemption fee that would have been payable if you remortgaged with another lender. If you remortgage with your existing lender they may not charge an early-redemption penalty that would have been charged if you moved to another lender.
The main drawback if you remortgage with your current lender is that you are limiting your choice of mortgage products that may exist with other lenders. If you are looking at interest rates available with other lenders you need to balance the reduction in mortgage payments with the higher costs involved in remortgaging with a new lender.
The pros and cons of remortgaging
- Save money on your monthly mortgage repayments
- Fix your mortgage rate for a number of years to help with budgeting
- Ability to borrow more money
- Pay off your mortgage sooner by shortening the mortgage term
- Costs involved in a remortgage may outweigh any financial benefit from a reduced interest rate
- Income, expenditure and credit checks may uncover issues that may affect the amount of mortgage you can obtain
- Arranging a remortgage with another lender may take as long as two months to complete so you need to start the process well ahead of any fixed-rate period ending
When is a good time to remortgage?
The best time to remortgage is when any special rate you currently have is nearing the end of the term. As it can take up to two months to complete a remortgage you should leave enough time before the term ends to complete your current deal to prevent you from having to revert to your lender's current SVR.
It is also worth considering a remortgage if you think that interest rates may go up in the near future. Securing a competitive fixed-rate deal now may prove a profitable decision over the chosen fixed-rate period. It may be worth reading our regularly updated view on current interest rates in this article "When will interest rates rise (or in fact be cut)? – Latest predictions".
If you are considering remortgaging with another lender you should be aware that since 2014 tougher mortgage application rules have been in place following the Mortgage Market Review, including the need to prove your income and provide information regarding your current and future spending. This tougher application process may prove a problem if you have recently become self-employed or started a business and have less than two years' accounts or taken on new financial commitments.
If you are remortgaging with a different lender then you will have to have your property revalued and provide a redemption statement from your current lender.
How much does it cost to remortgage?
The cost of a remortgage will be cheaper if you remain with your current lender as you are effectively just changing to a different product. The only fees you are likely to pay are administration fees and perhaps an exit fee if you are leaving your current deal before the end of the deal term.
If you are remortgaging with a different lender then the costs involved will be higher as they will include some or all of the following:
You can often save time and money by using the services of a mortgage broker or financial adviser who will carry out research on your behalf to find the best mortgage deal for your circumstances. A good mortgage broker will have access to deals that are not available on mortgage comparison sites as well as understanding the nuances of various lender's criteria that may fit your personal circumstances.
Costs can range from £150 to £1,000 but many online mortgage brokers may not charge a fee. If you haven't got a mortgage broker, it is worth considering Habito*, a specialist online mortgage broker that has received over 4,000 '5 star' reviews on Trustpilot. Habito does not charge a mortgage advice fee.
This fee will be charged by the new lender to carry out a valuation on your existing property and costs range from £200 - £500 depending on the value of the property.
This fee will be charged by the new lender to cover the cost of administering the mortgage and costs vary widely between lenders and products. The average fee can be up to £1,000. In most cases this fee can be added to the loan but you need to be aware that interest will then be charged on that fee which will mount up over the term of the mortgage.
This includes searches, transfer of ownership and all other legal paperwork together with cost paid for transferring the mortgage money between lenders and will average around £1,500.
Early repayment charge
If you leave your current mortgage deal before the end of the deal term then there is likely to be a charge to pay. This charge will depend on how much of the term remains and will vary between lenders
All these costs need to be factored in when deciding whether to remortgage and what deal is best for you. Often deals that look particularly attractive in respect of the interest rate can carry the highest fees and may not look as attractive when you factor in the fees involved.
How long does it take to remortgage?
If you are planning to change from your current lender it can take up to two months to process a remortgage, however, if you are staying with your current lender the process will be a lot quicker. As the remortgage process can take some time you should start your research well ahead of your current mortgage deal ending.
It would be worth engaging, as early as possible, the services of a reputable mortgage broker such as Habito* to research the best deal for your personal circumstances.
When shouldn't I remortgage?
It is not always necessary or advisable to remortgage if one of the following applies to your circumstances.
- You are already on a competitive mortgage rate and the cost of remortgaging may outweigh any savings made
- You have a large redemption fee payable on your existing mortgage deal
- Your circumstances have changed regarding your employment, maybe moving to self-employed or starting your own business
- You have or recently had credit problems which may limit your ability to source another lender
- You currently have a small mortgage and therefore any saving made from remortgaging may be minimal
Things to consider before remortgaging
Are your finances in order?
Before applying for a remortgage make sure you are financially sound by checking your credit score yourself using a free credit checking service such as ClearScore* or MSM Credit Monitor*. Complete a budgeting exercise to make sure you can afford the fees involved or the extra mortgage payments if you plan to borrow more money.
Do you want to borrow more money?
It may be that you could afford to borrow more on your mortgage to finance some home improvements in order to provide more living space and increase the value of your property in the process.
If you are going for a fixed-rate mortgage how long do you want the fixed-rate period to be?
It is important to think about how long you want the fixed-rate term to be so you are not locked into a time frame that doesn't suit your circumstances. It would be well worth reading our article 'Remortgaging in 2022 – is now the right time to fix & for how long?' which provides some very useful information on the subject.
What happens if I can't remortgage?
You may not be granted a remortgage if your income does not support the amount you want to borrow or you have a poor recent credit history. It would be advisable to speak to a mortgage broker if you feel that you might have a problem in this area. A mortgage broker can go through your personal circumstances and provide their opinion on your chances of securing a remortgage as it is often better not to apply in the first place rather than apply and get refused. If you are refused a remortgage after applying it will affect your credit score going forward and leave you unlikely to obtain a remortgage in the near future.
It should be easier to obtain a remortgage if you stay with your current lender as they have evidence of your payment history and personal circumstances so may have more flexibility when it comes to how much they are prepared to lend.
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