Remortgaging Made Simple: Everything You Need to Know

5 Minute Read

A remortgage is the process of switching your current mortgage to a new deal, either with your current lender or a different one. It’s an essential financial tool that homeowners can use to potentially save money, or access better terms. Whether your current mortgage deal is coming to an end, or you're simply looking for a different rate, remortgaging could be a smart move. But what does it really involve, and how can it benefit you? Let’s break it down.

What is a Remortgage?

A remortgage is the act of taking out a new mortgage on your property, usually to replace your existing one. This can be done for several reasons, including:

• Securing a different interest rate as your current rate is coming to an end.

• Releasing equity in your home for a major purchase or home improvements.

• Switching to a different type of mortgage (e.g., from a fixed-rate to a variable-rate mortgage).

• Consolidating debts or changing the terms of your current mortgage.

  
  

Unlike a new mortgage application where you may be buying a new property, a remortgage doesn’t involve moving. It’s simply about reassessing your current loan and ensuring you’re getting the best deal available at that time.

Why Should You Consider Remortgaging?

1. Save Money on Interest

The most common reason for remortgaging is to take advantage of lower interest rates compared to the lenders standard variable rate. If your current mortgage deal is coming to an end and you're moved onto your lender’s standard variable rate (SVR), you could be paying a higher rate than you need to. Switching to a better rate, even if it’s just a small difference, could save you thousands of pounds over the life of your loan.

For example, let’s say you have a £200,000 mortgage at 4.5% interest over 25 years. If you were to switch to a mortgage with a 3% interest rate, you could save £116 per month—adding up to over £40,000 in interest savings over the life of your mortgage!

2. Release Equity for Other Financial Goals

As property values rise and you make payments on your mortgage, you build equity in your home. Equity is the portion of your home’s value that you truly own (i.e., the value of the property minus what you owe on the mortgage).

If you need to release equity for a big life event (such as home renovations, paying off other debts, or funding a child’s education), remortgaging could be a way to access this. You can remortgage for a higher amount than your current loan and pocket the difference as cash.

3. Switch to a More Suitable Mortgage Product

Over time, your financial situation may change, and your original mortgage may no longer be the best fit. For instance, you might be able to get a better deal with a fixed-rate mortgage if you want certainty in your monthly payments. Alternatively, you might choose a tracker mortgage or variable-rate mortgage if interest rates are low and you're comfortable with some fluctuation.

By remortgaging, you can choose the mortgage that suits your current needs.

4. Consolidate Debt

If you’ve accumulated high-interest debt, like credit cards or personal loans, a remortgage can help you consolidate that debt by adding it to your mortgage. While this can lower your monthly payments by spreading the debt over a longer period, be aware that it also means you’ll be paying off the debt for a longer time, and you’ll end up paying more interest in the long run. Always weigh the pros and cons carefully before consolidating.

The Remortgaging Process

Remortgaging might sound complicated, but it’s essentially a straightforward process. Here’s how it typically works:

1. Shop Around for the Best Deal: As your broker I will compare different lenders as well as your current lender about their remortgage offers. Look for the best rates, terms, and any fees associated with switching.

2. Apply for the Remortgage: Once you’ve selected a new mortgage deal, we’ll need to apply. The lender will assess your finances, including your credit score, income, and existing debts. They’ll also value your property to ensure it’s worth what you’re borrowing.

3. Pay Any Fees: Remortgaging can involve a variety of fees, including arrangement fees, valuation fees, and legal fees. Some lenders may even offer a “fee-free” remortgage deal, but the cost might be incorporated into the loan itself. Make sure to factor these costs into your decision.

4. Complete the Remortgage: If your application is approved, your new mortgage will be arranged, and your old one will be settled. The lender will appoint a solicitor or give a cashback to use towards one, transfer the funds for your new mortgage, and your new mortgage terms will kick in. You’ll begin paying the new monthly amount immediately.

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When is the Right Time to Remortgage?

While you can technically remortgage at any time during your mortgage term, the best times to do so are usually when:

• Your current mortgage deal is about to end, and you're about to move to the SVR. You can do this up to 6 months before your fixed rate ends.

• Interest rates have dropped since you took out your mortgage.

• Your property has gained value, and you’ve built equity.

• You want to access cash for other financial goals.

Generally, if you’re within 6 months of your current mortgage deal ending, you’re in a good position to start shopping around. However, be sure to check if your current lender has any early repayment penalties for leaving before the term ends.

Things to Consider Before Remortgaging

• Early Repayment Charges (ERCs): Some mortgages have penalties for paying off your loan early. Make sure you’re aware of any ERCs before making the switch.

• Your Credit Score: A higher credit score usually means better interest rates. If your score has dropped, it might affect your ability to secure a competitive rate.

• Additional Fees: Take into account any fees associated with remortgaging, such as arrangement fees, valuation fees, and legal costs.

• Loan-to-Value (LTV): The higher your LTV ratio (how much you owe compared to your home’s value), the higher your interest rate may be. If your property has increased in value or you’ve paid off a large chunk of your mortgage, you may qualify for a better deal.

  
  

Conclusion

Remortgaging is a powerful way to take control of your finances, lower your mortgage payments, release equity, or switch to a more suitable mortgage. By taking the time to shop around and compare offers, you could save thousands of pounds in interest and find a mortgage that better fits your current financial situation.

Before making the move, be sure to carefully consider your goals, any fees involved, and how long you plan to stay in your home. A remortgage can be a great financial tool, but it’s important to understand the costs and benefits fully.

If you’re ready to explore your options, let me know.