What is remortgaging and how do I do it?
Low mortgage rates and a lack of suitable properties on the market are encouraging many homeowners to stay put and remortgage. Remortgaging is a popular option for those that either want to take advantage of a cheaper mortgage deal or to access cash locked up in their property in order to make improvements to their home.
In this article we explain how remortgaging works, how long it could take and how much it is likely to cost. If you are considering remortgaging and simply want to speak to someone who can provide free and impartial advice, then you can have your remortgage options reviewed for free online by one of the growing number of online mortgage brokers, such as Habito. We talk more about Habito in the section How do I get the best remortgage deal on the market? or alternatively you can read our full Habito review.
What is remortgaging?
A remortgage lets you transfer your current mortgage to a different product, whether that be with your existing mortgage provider or a new one altogether. There are a few reasons why you may want to remortgage:
Remortgage to move to a cheaper mortgage rate
The most common reason to remortgage is to move to a cheaper mortgage rate and avoid being left on a standard variable rate (SVR) at the end of a deal. For example, the average two-year fixed rate for a 75% loan-to-value mortgage (we explain what loan-to-value means later in this article) as of March 2019 was 1.68%, according to the Bank of England. But at the end of the deal period that will move to the lender’s SVR, where rates are typically more than double at around 4.9%. This means the monthly payments on a two-year fixed rate £150,000 mortgage over 25 years could increase from £613 to £868 at the end of the deal period – an increase of £255 a month or £3,000 over a year. Rather than accepting this hike, you can move your mortgage to a new deal, known as a remortgage.
Remortgage to release equity
Homeowners can also remortgage to release cash from their property which can be used for anything from paying off debts to paying for major events such as a wedding or to fund home improvements. Remortgaging to release equity usually means taking advantage of the rising value of your home. By releasing the additional equity that has accumulated since you originally took out the mortgage, you may be able to remortgage and take on a bigger loan. Remortgaging to release equity will result in higher monthly repayments but you will have access to cash that was previously tied up in your property. Obviously, this won’t work if your property has fallen in value as there would be no additional equity to draw against.
How does remortgaging work?
It may sound complex but understanding how remortgaging works can help you to prepare. Firstly and perhaps most importantly, you will need to understand what mortgage you currently have. You won't be able to make sense of a remortgage until you understand what mortgage you currently have. You will need to know the mortgage lender, the current mortgage rate, the term and the amount outstanding. If you don't have this to hand, you can usually obtain your latest mortgage statement by contacting your lender (check your bank statement if you have forgotten who your lender is).
Once you have your mortgage statement, you can pass that to your mortgage broker or the lender you are remortgaging with. You will need to go through another mortgage application and have your property valued to check that the loan-to-value hasn’t changed drastically. If approved, your new deal should repay and settle your old debt, leaving you with a brand new loan that is at a more competitive rate. Remember that you will need to make up any shortfalls if the new loan doesn’t repay the old debt.
It is worth remembering that a remortgage may not always be on a cheaper rate as you may decide to move from a cheap tracker to a more expensive fixed rate deal for more security, or you may take a larger loan to release some cash, which could result in higher repayments.
How long does remortgaging take?
Lenders and mortgage brokers advise that it can take up to two months to get a remortgage granted, but there are attempts by the Land Registry to speed up the process. It is working with several banks and conveyancers to allow documents to be signed and stored online using blockchain technology which should reduce the time it takes to process a remortgage.
It is important to get the timing right before you remortgage. The biggest barrier to remortgaging is the early repayment charge (ERC). Most fixed rate deals and some trackers will have ERCs which are effectively penalties for paying off the loan too early. At the same time, you want to avoid moving onto a more costly SVR at the end of a deal term.
It is best to start the remortgaging process at least two to three months before the end of your current deal to ensure there is enough time for the application to go through and before the higher rates kick in. A mortgage lender should contact you in the final months of your deal to inform you of the rate you will move to. A lender may also contact you towards the end of your fixed rate mortgage term with any offers it has available. Make sure you are prepared and use your time wisely to shop around so that you are ready to switch as soon as your current deal ends.
Can I choose the date my remortgage starts?
Yes, you can set a start date for your new loan based on when any exit penalties expire and before your existing mortgage moves to the SVR. This will ensure you don’t receive any extra charges or get moved onto the higher rate.
Some lenders will also hold the rates for up to six months so you could secure a new deal early in case you are worried that pricing on the market will be higher as you come closer to the end of your current offer.
How easy is it to remortgage?
Getting the right deal and doing so at the right time are just two factors when undertaking a successful remortgage. Even if you have been paying off a mortgage for many years, most lenders will treat a remortgage as a brand new application. The mortgage and remortgage process is a lot tougher thanks in part to new regulations that were introduced in 2014 under the Mortgage Market Review.
The Mortgage Market Review imposed strict affordability and interest rate stress tests. The additional tests imposed can be problematic if your circumstances have changed since you originally took out a mortgage. Income requirements have changed and the rules have become more strict when it comes to those that are self-employed.
Lenders will also stress test all applicants on how they could cope with a major rise in their repayments, should interest rates rise. Your credit report will also be checked so it is worth downloading a copy first to identify any errors. Finally, you will need to prove your income and potentially face tough questions about your future spending. You may want to read our article Remortgaging in 2019 – is now the right time to fix & for how long? as it offers additional insight into interest rates and the impact of fixing over 2, 3, 5 and 10 years.
How often can I remortgage?
There is no limit on the number of times you can remortgage but you should consider the cost impact of doing so. There may be broker fees, valuation fees, conveyancing fees as well as product fees and so the cost can easily mount up, especially if you intend to remortgage regularly. Remember that you could be liable for exit penalties in the form of ERCs if you decide to remortgage in the early years of a new deal.
When can I remortgage?
Homeowners should consider remortgaging when they come to the end of a fixed rate deal to avoid moving onto the more expensive SVR; many forget to do this and are left with higher repayments.
It may still be worth remortgaging even when your deal is ongoing if there are no ERCs or if the savings outweigh any exit penalties.
If you are on a tracker rate it is likely that you won’t have to pay ERCs, so you are free to remortgage at any point, so long as you can find a better deal. Another good time to remortgage is if you are on a tracker rate but want the security of fixed payments if, for example, you think rates are set to increase.
How much does it cost to remortgage?
There are a number of remortgage costs. Your first question is likely to be how much can I remortgage my house for? Typically, you will remortgage for the value of your current mortgage, but you may want to take a larger amount if you want to withdraw some cash from the equity in your property.
Your existing lender may charge ERCs if you remortgage before the end of your fixed rate deal, but there is likely to be additional costs associated with your new product. A bank or mortgage broker may charge an advice fee and there could also be a product charge to pay. You may also have to pay for a valuation and conveyancing to sort out the legal side of the transaction.
Will I save money by remortgaging?
The fees you will pay for remortgaging, combined with the actual rate that you will move onto can make a big difference to whether you actually save money by remortgaging. The cheapest mortgage deals will often be the ones with the highest fees. For example, if you took the £150,000 mortgage again on a two-year fixed rate and added a £995 fee to the low 1.68% deal, the total cost over the two years would be £15,703.16. But if that mortgage was priced at 2% with no fees, it would be £444 cheaper at £15,258.76 over the same period.
Remember, the cheapest remortgage deals aren’t necessarily going to be those with the lowest fees and you may end up paying more overall.
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 mortgage broker London and Country’s mortgage calculator.
If at the end - once you factor in any fees and the new rate - you are still questioning if remortgaging saves money, then it may not be the right time to make the switch.
Things to consider before remortgaging
Why are you remortgaging?
Remortgaging for a cheaper rate
The main reason homeowners remortgage is to move to a cheaper rate. Make sure that the deal you are considering moving to is better than the one you are on, taking into consideration all of the associated fees. You also need to consider whether now is the right time. For example, if you are on a tracker rate it may be tempting to remortgage onto a fixed deal to have the security of fixed payments, but can you be sure that the current remortgage rates on the market are the best on offer or is it worth waiting a little longer if you think that there may be some better deals in the future.
Remortgaging to release equity
Another reason to remortgage may be to access cash from the equity built up in your property, either to fund home improvements or make a big purchase. It is worth considering if there are other options available to you for instance, if you are looking for a relatively small amount, you may be able to finance it through a personal loan. Personal loan rates are still low at around 3% and the application process can be less time consuming (as much of it can be done online and it will be based on your credit report rather than property valuations). Personal loans can often be more flexible with options to take a repayment holiday and paying the loan off early and there is an added bonus in that your home is never at risk.
Should I use a mortgage adviser when remortgaging?
Advice can be vital in weighing up the reasons for remortgaging and the best ways to go about it. A mortgage adviser can you to work out how much you should borrow, how long for and can offer their opinion on whether it is better to fix or get a tracker rate.
You can get advice and a remortgage product from your current lender or any other bank or building society, but remember they will only only be able to offer advice on their own products.
In contrast, a mortgage adviser will have access to a range of products from different providers, including specialist deals. A mortgage adviser may also be able to offer additional insight into the lenders most likely to approve a loan based on your own unique criteria. A mortgage adviser may also be able to recommend a remortgage as part of wider financial planning work they are doing for you, so they can ensure it fits with your whole lifestyle, rather than just selling you a product.
How do I get the best remortgage deal on the market?
It is best to shop around and never simply accept what your current lender offers when your current fixed deal is about to expire. You should speak to an independent mortgage adviser where possible as they will have access to a much wider range of products and lenders.
If you don't know a mortgage adviser whose opinion you trust then you can get your mortgage options reviewed for free online through Habito, one of the first online mortgage brokers in the UK. We at Money to the Masses have personally visited Habito's offices to see how they work and scrutinise their recommendation process and we have been impressed. Habito are able to check through over 20,000 mortgages from more than 90 mortgage lenders for you before making a recommendation. What is impressive is that their recommendation may even be that your existing lender offers the best deal and you should stay where you are.
The whole process can be carried out online if you wish (without the need for face-to-face meetings). Habito has a 5 star rating on Trustpilot from over 2500 customer reviews who it has helped save hundreds of pounds a month. It only takes around 10-15 mins to register online and Habito will be able to give you instant, free mortgage advice. Simply click on the above link and then go to 'Get started'.
When is the best time to switch?
The best time to switch will often be when you are coming to the end of a fixed deal as this will avoid you having to move onto a more expensive SVR. But there will be other occasions such as if you are moving from a tracker to a fixed rate or if you need to access the equity in your property, in these situations it may be best to speak to a mortgage adviser, such as Habito, to work out if the savings and benefits outweigh all the costs involved.
- 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
- Remortgage - the transfer of a mortgage from one lender to another
- Loan-to-value - The ratio of the loan versus the value of the property
- Mortgage broker - a person/company that arranges mortgages between borrowers and lenders
- Tracker rate - a variable rate mortgage that follows the Bank of England's base rate
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