Remortgaging

Remortgaging means changing the mortgage on your home.

Usually, this means moving to a new mortgage deal with a different lender. However, you may also be able to change deals with your current lender.

People remortgage for many reasons. For example, you may want a lower interest rate, more certainty over your payments or access to some of the equity in your home.

However, changing your mortgage can involve costs. Therefore, it is important to compare the whole deal before making a decision.

What Is Remortgaging?

When you remortgage, you replace your existing mortgage with another one.

For example, suppose you have:

Mortgage balance: £150,000

You find a new mortgage for the same amount. The new mortgage is then used to repay the old one.

After that, you make your mortgage payments under the new deal.

You normally remain in the same property.

Why Do People Remortgage?

There are several common reasons.

You may want to:

  • get a lower interest rate
  • avoid moving onto a higher variable rate
  • fix your rate for longer
  • reduce your monthly payments
  • change the mortgage term
  • borrow more money
  • move to a more flexible mortgage
  • change lender

However, remortgaging is not always cheaper.

Fees and charges can sometimes reduce or remove the savings.

What Happens When Your Fixed Rate Ends?

Many mortgages have an initial fixed period.

For example, your rate may be fixed for two or five years.

When the fixed period ends, you will normally move onto another rate set out by your lender. This is often the lender’s Standard Variable Rate (SVR).

An SVR can be higher than the rate you were paying.

Therefore, many homeowners review their mortgage before their current deal ends.

When Should You Start Looking?

It can be useful to start reviewing your mortgage several months before your current deal ends.

This gives you time to compare your options.

It can also reduce the risk of moving onto a more expensive rate while arranging another mortgage.

However, check how long any new mortgage offer remains valid.

Also, check whether your existing mortgage has an Early Repayment Charge.

What Is a Product Transfer?

You do not always need to change lender.

Your current lender may allow you to move onto another of its mortgage deals. This is commonly called a product transfer.

The process can sometimes be simpler than a full remortgage.

For example, there may be fewer checks or lower costs.

However, staying with your current lender does not guarantee the best deal.

Therefore, compare the product transfer with other suitable options.

What Is an Early Repayment Charge?

Some mortgages charge a fee if you repay the mortgage or leave the deal early.

This is known as an Early Repayment Charge (ERC).

For example, suppose your mortgage balance is £150,000 and the ERC is 2%.

The charge could be:

£150,000 × 2% = £3,000

That could make switching early expensive.

Therefore, check your existing mortgage before arranging a remortgage.

How Does Loan-to-Value Affect Remortgaging?

Loan-to-Value (LTV) compares your mortgage balance with the value of your property.

Suppose your home is worth:

£250,000

and your mortgage balance is:

£150,000

Your LTV is:

£150,000 ÷ £250,000 × 100 = 60%

So, your mortgage has an LTV of 60%.

LTV matters because lenders often offer different rates at different LTV levels.

Generally, a lower LTV can give you access to a wider range of mortgage deals.

How Can Your LTV Fall?

Your LTV can fall in two main ways.

First, you may repay part of your mortgage.

Second, the value of your home may rise.

For example, you may have started with a 90% LTV mortgage. Several years later, repayments and a higher property value could reduce this to 75%.

As a result, different mortgage deals may become available.

However, property values can also fall. Therefore, a lower LTV is not guaranteed.

How Much Could You Save?

A lower interest rate can reduce your mortgage costs.

However, the interest rate alone does not show the full picture.

For example, a new mortgage may include:

  • arrangement fees
  • valuation fees
  • legal fees
  • broker fees
  • Early Repayment Charges
  • other costs

Therefore, calculate the total cost before switching.

A mortgage with a slightly higher rate and no large fee may sometimes cost less overall.

Can You Remortgage to Borrow More?

Yes, depending on your circumstances and the lender’s rules.

This is sometimes called additional borrowing or capital raising.

For example:

Current mortgage: £120,000

New mortgage: £150,000

The extra £30,000 could be released for an agreed purpose.

People may consider this for home improvements or other large costs.

However, borrowing against your home increases the amount secured on the property.

It may also increase your monthly payments or extend the time needed to repay the mortgage.

Therefore, consider the long-term cost carefully.

Using Your Mortgage to Repay Other Debts

Some homeowners consider remortgaging to repay credit cards, loans or other debts.

This may reduce the interest rate on the borrowing.

However, there are important risks.

A mortgage is secured against your home. In contrast, some other borrowing may be unsecured.

Also, spreading a debt over a much longer mortgage term can mean paying more interest overall.

Therefore, a lower monthly payment does not always mean a lower total cost.

Can You Remortgage to Reduce Your Monthly Payments?

Possibly.

A lower interest rate may reduce your payments.

You could also reduce payments by extending your mortgage term.

However, a longer term normally means paying interest for longer.

For example, extending a mortgage from 15 years to 25 years could lower the monthly payment.

Yet, the total amount repaid may be higher.

Therefore, consider both the monthly payment and total cost.

Can You Shorten Your Mortgage Term?

Yes, if the lender agrees and the higher payments are affordable.

A shorter mortgage term can help you repay the loan sooner.

It may also reduce the total interest paid.

However, your monthly payments will normally increase.

Therefore, make sure the new payment is manageable.

What Will the New Lender Check?

A full remortgage normally involves a new mortgage application.

The lender may look at your:

  • income
  • regular spending
  • debts
  • credit history
  • employment
  • mortgage balance
  • property value
  • requested mortgage term

The lender also needs to decide whether the mortgage is affordable.

Therefore, being accepted for your existing mortgage does not guarantee that another lender will accept a new application.

Will Your Home Need a Valuation?

Usually, the new lender will want to know the value of your property.

The lender may arrange a valuation.

In some cases, this could be completed using property data rather than a physical visit.

The valuation helps the lender calculate your LTV.

However, the lender’s valuation may differ from your own estimate of the property’s value.

Are There Legal Costs?

A remortgage to another lender can involve legal work.

For example, the old lender’s mortgage must be repaid and the new lender’s security put in place.

Some mortgage deals include legal services as part of the package.

Others do not.

Therefore, check what is included before comparing costs.

What Documents Might You Need?

The exact requirements vary between lenders.

However, you may be asked for:

  • proof of identity
  • proof of address
  • payslips
  • bank statements
  • proof of other income
  • details of existing debts
  • information about your current mortgage

Self-employed applicants may need different evidence.

Preparing these documents early can make the process easier.

What If Your Circumstances Have Changed?

Your circumstances may be different from when you first took out your mortgage.

For example, you may now:

  • earn more or less
  • be self-employed
  • have more debt
  • have children or other dependants
  • work fewer hours
  • have a different credit history

These changes can affect your options.

Therefore, do not assume that you will automatically qualify for a new mortgage simply because you already have one.

What If Your Property Value Has Fallen?

A fall in your property’s value can increase your LTV.

For example:

Mortgage balance: £180,000

Property value: £200,000

This gives an LTV of:

90%

A higher LTV can reduce the number of deals available.

In some cases, the mortgage balance could even be greater than the property’s value. This is known as negative equity.

If this happens, remortgaging to another lender may be more difficult.

Should You Stay With Your Current Lender?

Sometimes staying with your existing lender can make sense.

For example, a product transfer may be quicker or involve fewer costs.

However, another lender may offer a better overall deal.

Therefore, compare:

Your current lender’s new deal

with

Suitable deals from other lenders

Then consider the rates, fees and features together.

Don’t Compare Interest Rates Alone

A low headline rate can be attractive.

However, look at the full mortgage.

Check:

  • interest rate
  • monthly payment
  • arrangement fee
  • mortgage term
  • Early Repayment Charge
  • valuation costs
  • legal costs
  • incentives
  • flexibility

Also, consider how long you expect to keep the mortgage.

This can make a big difference to which option offers better value.

A Simple Remortgage Comparison

Suppose you have two options:

Mortgage AMortgage B
Interest rate4.0%4.2%
Product fee£1,499£0
Fixed period2 years2 years

Mortgage A has the lower rate.

However, it also has a £1,499 fee.

Therefore, Mortgage A is not automatically cheaper.

You need to calculate the cost over the period you expect to keep the deal.

Can You Add the Mortgage Fee to the Loan?

Some lenders allow you to add a product fee to the mortgage.

This can reduce the amount you need to pay upfront.

However, you will then owe more money.

You may also pay interest on the fee.

Therefore, adding a fee to the mortgage can increase its total cost.

Remortgaging Step by Step

The process can be broken down into simple stages:

1. Check when your current deal ends

2. Check for Early Repayment Charges

3. Find your current mortgage balance

4. Estimate your property’s value

5. Calculate your LTV

6. Review your finances

7. Compare your current lender’s options

8. Compare suitable deals elsewhere

9. Consider all fees and charges

10. Apply for the new mortgage

11. Complete the lender’s checks

12. Complete the legal process

Your new mortgage can then replace the old one.

When Might Remortgaging Not Be Suitable?

Changing mortgage is not always worthwhile.

For example, you may decide against it if:

  • your existing rate is competitive
  • the Early Repayment Charge is high
  • the new mortgage has large fees
  • your mortgage balance is small
  • your financial circumstances have changed
  • your property value has fallen
  • you plan to move soon

Therefore, compare the benefits with the costs before proceeding.

The Key Point

Remortgaging can help you change the cost, term or features of your mortgage.

However, a lower interest rate does not always mean a cheaper mortgage.

Consider the rate, fees, mortgage term and total cost together.

Also, start reviewing your options before your existing deal ends.

That gives you more time to compare your choices and decide what works best for your circumstances.