Remortgaging means replacing your existing mortgage with a new one from a different lender. You might do this to get a better deal, change your mortgage or adjust your borrowing.
Before switching, compare the total cost, not just the new interest rate.
What Is Remortgaging?
When you remortgage, your new mortgage pays off your existing one.
You still owe money on your home, but the mortgage moves to a different lender under new terms.
However, staying with your current lender and moving to another of its mortgage deals is different. This is usually called a product transfer. (MaPS)
Why Remortgage?
A common reason is that a fixed or discounted deal is coming to an end.
If you do nothing, you will normally move to your lender’s reversion rate, which is often its standard variable rate (SVR). This will typically be higher than the rate you were paying during your initial deal. (FCA)
However, a lower rate is not the only reason to consider remortgaging. You might also want to:
- change from a variable to a fixed rate
- change the mortgage term
- move to a mortgage with different features
- repay an interest-only mortgage differently
- borrow more against your home
Some of these changes can affect both your monthly payment and the total amount you repay.
When Should You Start?
Don’t wait until your current deal has already ended.
Mortgage offers commonly remain valid for several months, so you may be able to arrange your next mortgage before the old deal finishes. (FCA)
Starting early gives you time to compare your existing lender’s offer with alternatives.
Some lenders participating in the Mortgage Charter also allow customers to lock in a new deal up to six months before a fixed deal ends. (FCA)
Check Your Current Mortgage
Before comparing new deals, find out exactly what you already have.
Check:
- your outstanding mortgage balance
- current interest rate
- date your deal ends
- remaining mortgage term
- monthly payment
- early repayment charge
- other exit fees
- current property value
This gives you a proper starting point for comparison.
Check Your LTV
Your loan-to-value, or LTV, compares the amount you owe with the current value of your property.
For example, if your home is worth £250,000 and your mortgage balance is £150,000:
£150,000 ÷ £250,000 × 100 = 60% LTV
Your LTV may have changed since you bought the property because you have repaid some of the mortgage or the property’s value has changed.
A lower LTV can sometimes give you access to a wider choice of mortgage deals.
Compare Your Existing Lender
Don’t assume that changing lender will automatically give you the best result.
Your current lender may offer a product transfer to another mortgage deal. This can sometimes involve a simpler process than moving elsewhere.
If you are up to date with your payments, switching to another deal with your existing lender may also be possible without a new affordability assessment, provided you are not increasing your borrowing, although exceptions can apply. (FCA)
So, compare what your existing lender offers before deciding to leave.
Compare the Total Cost
The mortgage with the lowest interest rate is not necessarily the cheapest.
A new deal might include:
- product or arrangement fees
- valuation fees
- legal costs
- broker fees
- early repayment charges on your existing mortgage
- other mortgage fees
A slightly higher rate with a small or zero product fee can sometimes cost less overall than a lower-rate mortgage with a large fee. MoneyHelper illustrates exactly this effect in its current remortgaging guidance. (MaPS)
So, compare the cost over the period you expect to keep the deal rather than looking at the headline rate alone.
Watch Early Repayment Charges
An early repayment charge, or ERC, is a fee that may apply if you repay or leave your existing mortgage before a certain date.
It can make switching early expensive.
For example, saving £100 a month on a new mortgage sounds attractive. However, if leaving your existing mortgage costs several thousand pounds, it could take a long time to recover that cost.
Check your mortgage agreement or ask your lender what you would have to pay to leave.
Will You Need an Affordability Check?
If you move to a different lender, you will usually need to show that you can afford the new mortgage.
The lender may look at your income, spending, debts and other financial commitments. It may also consider whether you could continue to afford the mortgage if rates change. (FCA)
However, FCA rules contain some flexibility for eligible borrowers switching mortgages without additional borrowing. The rules are designed to make it easier for some borrowers to move to a more affordable mortgage. (FCA Handbook)
That does not mean every lender must accept every application.
Should You Extend the Term?
A remortgage is also an opportunity to review your mortgage term.
Extending the term can reduce the monthly payment because you spread repayment over more years.
However, you will normally pay interest for longer. That can increase the total amount you repay.
For example, reducing a monthly payment by extending a mortgage from 15 years to 25 years may help your immediate budget, but the extra decade of interest could be significant.
So, compare both:
monthly payment
and
total interest
before extending the term.
Should You Shorten the Term?
If your finances have improved, you may consider a shorter mortgage term.
Your monthly payments will normally increase, but you could repay the mortgage sooner and reduce the amount of interest charged over its life.
Before doing this, make sure the higher payment leaves enough room in your budget for other bills and unexpected costs.
Borrowing More
You may be able to remortgage for more than you currently owe and release some of the equity in your property.
For example, you might consider this for home improvements.
However, borrowing against your home is different from using ordinary savings. You are increasing debt secured on your property and may repay it with interest over many years.
Therefore, look at the total cost of the additional borrowing, not simply whether the extra monthly payment appears affordable.
What If You Plan to Move?
Think carefully before taking a new mortgage deal if you expect to move home soon.
A deal with an attractive rate could also have a significant early repayment charge.
Some mortgages can be ported to another property, but portability does not guarantee that you can simply transfer the mortgage. The lender may still need to assess the new property and your circumstances.
If moving is likely, flexibility may matter as much as the interest rate.
When Remortgaging May Not Pay
Changing mortgage is not automatically worthwhile.
It may make less sense if:
- your existing deal is already competitive
- an early repayment charge is high
- fees outweigh the potential saving
- your mortgage balance is relatively small
- your circumstances make another mortgage difficult to obtain
- you expect to move home soon
The important question is not:
“Can I get a lower rate?”
It is:
“Will changing mortgage leave me better off overall?”
Before You Remortgage
First, check when your existing deal ends and what it would cost to leave.
Next, find out what your current lender can offer. Then compare this with suitable alternatives elsewhere, including all fees and charges.
Finally, consider the longer-term effect. A lower monthly payment can be useful, but not if it comes from stretching the mortgage over many extra years without understanding the additional interest.
Key Points
- Start reviewing your mortgage before your existing deal ends.
- Compare a product transfer with remortgaging to another lender.
- Look at fees and charges as well as the interest rate.
- Check for early repayment charges before switching.
- Consider both the monthly payment and total cost.
- Don’t extend the mortgage term without checking the extra interest.
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