Remortgaging can sound like an intimidating prospect, but it offers many benefits depending on your circumstances and you could find that it helps with your financial situation.
Whether you want to switch to a cheaper deal, make improvements to your home or pay off debts with the equity released from your property, remortgaging can help. In our remortgage guide, we explain what remortgaging is, who it can be beneficial for, the best time to remortgage and more.
Coronavirus has changed many people’s financial situations. In this section of our remortgage guide, we’ll explain whether remortgaging during Coronavirus is possible and how the pandemic may affect your application.
The term remortgaging can be used in the wrong context, with some people believing it means changing mortgages with your existing lender. In this section, we’ll go through what it means and what it entails.
The remortgaging process is similar to buying a property, but there are differences with this process. In our remortgage guide, we’ll explain how remortgaging works and the different steps involved with applying for a remortgage on your property.
While technically you can remortgage at any time, there are certain times when it makes more sense to apply. We’ll explain when you should consider taking this step and why certain periods are better suited to this type of mortgage application.
Remortgaging, like any financial product, has its pros and cons depending on your financial situation and requirements. In this section of the remortgage guide, we’ll explain the benefits of remortgaging and who it can help the most.
While switching to a different lender can provide financial benefits, there are some costs associated with it. We’ll explain the types of costs associated with remortgaging and what you should expect when making an application.
Who can take advantage of remortgaging and what are the reasons for choosing to switch lenders? We highlight who can benefit the most from switching their mortgage to a new lender and why.
There are various types of remortgage product available, depending on your reasons for switching mortgage lenders. From buy to let to using a remortgage for home improvements, we’ll explain the most common types of remortgages.
There are certain times when it may be more sensible to remortgage – in the final section of our guide, we explain when the best time to remortgage is and why.
Remortgaging during Coronavirus
Remortgaging doesn’t have to mean moving house, but you could save money through this process, whether your current mortgage deal is drawing to a close or because you want to switch to a different lender.
While remortgaging can be more difficult during the Coronavirus pandemic, especially for self-employed individuals or those who have had their finances affected by COVID-19, it’s not off limits. You may have to wait longer for a decision, but you can still remortgage and you can still get advice on the process.
1: What is a remortgage?
You may have heard the term remortgage but wondered what does remortgaging mean? This process allows borrowers to switch from their existing mortgage deal to a new one, which can offer several benefits such as lower monthly repayments and the option to borrow more money against your property.
A mortgage provider can offer very attractive rates initially to draw in new customers, but these rates are typically only for a set period and they then increase to a Standard Variable Rate (SVR), which is usually higher. A remortgage is not the same as some people’s definition of borrowing more money from their current lender – it’s the process of applying for a new mortgage with a different lender, without having to move out of your home.
2: How does remortgaging work?
So, you’ve made the decision to switch to a different mortgage deal, having taken into account your broader financial situation. But how does remortgaging work? Understanding how to remortgage is important before you start the process, as there are several steps you’ll need to take.
The first step is to complete an Agreement in Principle, which most lenders will enable you to get online. An Agreement in Principle will allow you to find out if a lender is willing to lend you the amount you need, without carrying out a full credit check. However, it’s worth noting that this is not a guaranteed approval of your remortgage – it’s just to help you work out what your options are.
Once you have an idea what a lender will let you borrow, you need to check whether remortgaging leaves you in a better financial situation. This means checking whether the lender you’re considering switching your mortgage to charges for:
- Application fees to set up your new mortgage (this also might be referred to as an arrangement, product or booking fee)
- Valuation fees to confirm the value of your property
- Solicitor’s fees, as they will need to manage the transfer of your mortgage
You may also have to pay an exit fee with your current lender, or an early repayment fee.
If you’ve decided that a remortgage would leave you better off, you can apply. You’ll need to provide personal and financial information, including details of your current mortgage, in the application. Ensure that you have the relevant documents for this, such as payslips and documents to prove your earnings and any information about loans or other credit commitments you might have.
The lender will carry out a credit check to confirm your circumstances and your affordability, as well as make arrangements for your property to be valued. The process is then similar to buying a new property, with a solicitor handling the transfer of the mortgage.
3: When can you remortgage?
When to start the remortgage process varies for everyone and it can depend on several factors. The best time to remortgage is just before your current deal comes to an end, but you can start looking for a remortgage deal around three months before this time. This will give you enough time to seek out the right deal and apply, just in time for your existing deal to draw to a close.
Choosing when to remortgage can also vary depending on the Bank of England interest rate, which influences the Standard Variable Rate lenders use. If the Bank of England’s interest rate has dropped since you took out your fixed rate mortgage, you may find that remortgaging isn’t the right move for you – unless you can still find a more competitive tracker deal or variable rate elsewhere. If it’s risen since you took out a fixed rate product, you will likely want to remortgage to a lower rate.
Remortgaging offers a great opportunity to continue paying your mortgage at an introductory rate for longer, without needing to move properties. But it’s generally advised to wait until just before your current deal ends before remortgaging as early repayment fees are likely to be larger than the gains you’d make from a new deal.
4: The benefits of remortgaging
There are many remortgaging benefits, but one of the primary reasons people choose to remortgage is that it offers them the opportunity to switch to a cheaper rate which can make your monthly repayments smaller. Remortgaging can save the average homeowner thousands per year, compared to staying with the SVR.
In addition to borrowing at a lower interest rate, remortgaging can also enable you to utilise your home’s equity for extra cash and it may offer you the chance to switch to a product that is better suited to your financial circumstances. For some people, remortgaging is a way of consolidating your debts into an easier to manage monthly payment.
5: Cost of remortgaging your home
Remortgaging can save you a lot of money over the course of the year, but there are remortgaging costs to consider when you’re choosing a deal which extends beyond just the headline rate you’re offered. So, how much does it cost to remortgage? The most common fees you might face when deciding to switch mortgages are as follows:
- Arrangement fees– some lenders will charge a fee to set up your new mortgage, which is either paid upfront or added to your mortgage. Products with this fee also come with a lower mortgage rate, and vice versa.
- Mortgage booking fees – Lenders may also charge a booking fee to secure the remortgage deal you want, which you’ll pay when you submit your application. These are non-refundable and vary between £100 and £200.
- Legal fees– You will need to pay a solicitor or conveyancer to carry out the legal work involved in switching your mortgage to a different lender and arranging for you to pay the outstanding debt on your existing mortgage. Some lenders include free legal work as part of their remortgaging deal.
- Remortgage valuation fees– Your new lender will value your home before accepting your remortgage application, to determine how much the property is worth. Valuation fees can vary depending on the size of the property and typically cost between £250 to £1,500.
- Early Repayment Charges (ERC)– If you leave your existing mortgage deal before it finishes, you could have an ERC to pay. Check before planning a remortgage to ensure your deal doesn’t have fees attached.
- Exit fees – Also known as a mortgage completion fee, exit fees are administrative charges that can be imposed by lenders when you pay off your mortgage in full.
6: Why do people remortgage?
There are different types of remortgage and various reasons why remortgage products are the right option for people. One of the most common reasons is to switch to a lower interest rate when your fixed rate deal comes to an end, enabling you to benefit from lower monthly repayments and lower interest costs on your mortgage. But there are other types of remortgage that may suit you:
Buy to Let Remortgages
In this guide, we’ve explained what remortgaging is, but what is a buy to let mortgage? A buy to let remortgage, or BTL remortgage, is a mortgage deal where the owner can let out their property which you can switch to when your existing mortgage deal ends. This offers a revenue stream that can be used to pay the mortgage each month.
Remortgaging to release equity
A common reason people look to switching lenders is to remortgage, to release equity in their home. This money can be put towards home improvements or to repay other debts, for example. Remortgaging to release equity in your home has several benefits but it’s important to weigh up the pros and cons before you decide to choose this type of remortgage product.
So, what is equity? Equity refers to how much of the property you own outright. For example, if you bought your property with a 10% deposit, you would own 10% equity of the property. Typically, as you repay your mortgage, the level of equity will increase as you’re paying off your debt. But the equity doesn’t just increase by repaying your debt – if your home increases in value, the equity will also rise.
Remortgaging to buy a second property
Buying a second property, whether you’re doing so as an investment as a buy to let property or for another reason, is costly. But remortgaging to buy a second home can make the process easier to manage and if you’ve built up equity in your first home, there’s no reason why it can’t be used to buy another.
If you’re looking to remortgage to buy a second property, it’s important to bear in mind that unless the remortgage on your first property is enough to cover the outstanding mortgage and buy a second property in full, you’ll have two mortgages. The equity released from your first property will form your deposit for the second.
Remortgaging to pay off personal debts
Since switching to a different mortgage rate can release equity in some cases, it poses the question: can you remortgage to pay off debt? The answer is yes – you can remortgage to pay off debt, either by reducing your monthly payments to put extra cash towards your debts each month or by paying them off with a lump sum. It’s worth speaking to a financial advisor before remortgaging to consolidate or pay off debts, however, as it depends on your individual circumstances.
Remortgaging to make home improvements
You may want to remortgage to make home improvements, such as adding an extension to your property or renovating certain rooms in your home which can be costly.
For those wondering ‘can I remortgage to do home improvements’, the answer lies in the type of property you have and your existing mortgage loan, as well as your financial situation. When you’re applying for extra money to fund home improvements, the lender may also want additional information about the type of improvements you’re carrying out.
With an interest-only mortgage, you only pay back any interest due on the mortgage during the loan period. The benefit of this is that your monthly repayments will be significantly lower than with a repayment mortgage, which makes them an attractive option for some people.
If you remortgage to interest only mortgage, you won’t be paying back any of the capital on the loan which means you’ll need to pay the original loan as a lump sum at the end of the mortgage term. Your lender will need you to provide proof that you’re able to pay this sum back before they will approve an interest-only remortgage.
Fewer lenders will provide interest-only mortgages, which means the number of deals available to you will be more limited than for repayment mortgages.
7: Best time to remortgage
While you can remortgage your home at any time, there’s no point in changing lenders just for the sake of it. So, when is the best time to remortgage? There are a few situations where it may make sense to consider remortgaging your home to put you in a better financial situation.
The best time to remortgage can vary from person to person and it depends on your financial circumstances, but if the following apply to you, it could be worth considering:
- If your fixed rate mortgage deal is finishing
- If interest rates are lower now than when you took out your mortgage
- If you’ve built up a significant amount of equity in your home, either through repayments or if the value of the property has increased considerably
- If you want to overpay but your lender won’t allow you to
If any of the above reasons apply, you could find yourself in a good position to apply to remortgage your property and improve your financial situation.