Remortgaging

A Simple Guide to Changing Your Mortgage

Your mortgage may last for many years.

However, your mortgage deal may only last for a short time.

For example, you may have a fixed rate for two or five years.

When that deal ends, your interest rate may change.

As a result, your monthly payment could also change.

This is why many people choose to remortgage.

Remortgaging means changing your mortgage without moving home.

You might stay with your current lender.

Alternatively, you could move to a different lender.

This guide explains how remortgaging works.

It also explains what you should check before making a decision.

What Is Remortgaging?

Remortgaging means replacing your current mortgage with a new one.

Usually, the new mortgage pays off the old one.

Then, you start making payments under the new deal.

For example:

Current mortgage: £150,000

New mortgage: £150,000

The new mortgage pays off the existing £150,000.

After that, you make your monthly payments on the new mortgage.

However, you may also choose to borrow more.

For example:

Current mortgage: £150,000

New mortgage: £180,000

In this example, £150,000 pays off the old mortgage.

The extra £30,000 is new borrowing.

Of course, the lender would need to agree to this.

Why Do People Remortgage?

People remortgage for different reasons.

Most often, their current deal is coming to an end.

However, you may also want to:

  • Get a new interest rate.
  • Reduce your monthly payment.
  • Fix your rate for a set time.
  • Change the length of your mortgage.
  • Borrow more money.
  • Add someone to the mortgage.
  • Remove someone from the mortgage.

Your reasons will depend on your own situation.

Therefore, there is no single mortgage that is right for everyone.

When Your Current Deal Ends

Many mortgages have an initial deal.

For example, you may have a fixed rate for:

  • Two years.
  • Three years.
  • Five years.

When the deal ends, your mortgage may move to your lender’s Standard Variable Rate.

This is often called the SVR.

The SVR may be higher than your current rate.

As a result, your monthly payment could increase.

Therefore, it can be useful to look at your options before your current deal ends.

When Should You Start Looking?

You do not always need to wait until your deal ends.

Instead, you may be able to start looking several months before.

This gives you more time.

As a result, you may avoid making a rushed decision.

First, check:

  • When your current deal ends.
  • Whether you will pay an Early Repayment Charge.
  • When a new deal could start.
  • How long a mortgage offer lasts.

Then, you can start looking at your options.

Can You Stay With Your Current Lender?

Yes.

You may be able to choose a new deal with your existing lender.

This is often called a:

Product transfer

or:

Product switch.

This can sometimes be quicker and easier.

You may also have less paperwork to complete.

However, staying with your current lender is not always the best option.

Therefore, it can still be useful to compare other choices.

Can You Move to a New Lender?

Yes.

You can also remortgage with another lender.

The new lender would pay off your current mortgage.

Then, you would make your payments to the new lender.

A new lender may offer:

  • A different interest rate.
  • Lower fees.
  • Different overpayment rules.
  • A longer or shorter mortgage term.
  • More suitable features.

However, you will usually need to make a new application.

The lender will also check whether you can afford the mortgage.

Therefore, moving lenders can take more work.

Do Not Look at the Interest Rate Alone

The interest rate is important.

However, it is not the only cost.

For example, one mortgage may have a low rate.

However, it may also have a large fee.

Another mortgage may have a slightly higher rate.

However, it may have no fee.

Therefore, look at the full cost.

Check:

  • The interest rate.
  • Mortgage fees.
  • Other charges.
  • Legal costs.
  • Valuation costs.

A lower rate does not always mean a cheaper mortgage.

Fixed-Rate Remortgages

A fixed-rate mortgage keeps the same interest rate for a set time.

For example:

  • Two years.
  • Five years.
  • Ten years.

This can make your payments easier to plan.

Your rate will stay the same during the fixed period.

However, fixed deals can give you less flexibility.

For example, you may pay a charge if you:

  • Leave the mortgage early.
  • Move to another deal.
  • Repay a large amount.

This charge is often called an Early Repayment Charge, or ERC.

Therefore, think about your future plans before choosing a fixed deal.

Variable-Rate Remortgages

A variable-rate mortgage can change.

Therefore, your monthly payment can also change.

Your payment could go up.

However, it could also go down.

There are different types of variable mortgage.

For example, a tracker mortgage usually follows another interest rate.

If that rate changes, your mortgage rate may also change.

Before choosing this type of mortgage, ask yourself:

Could I still afford my mortgage if the payment increased?

Changing Your Mortgage Term

Remortgaging can also give you the chance to change how long your mortgage lasts.

For example, you may have 20 years left.

You could extend the mortgage term.

This may reduce your monthly payment.

However, you may pay interest for longer.

As a result, the mortgage could cost more overall.

Alternatively, you could shorten the term.

This may increase your monthly payment.

However, you could repay the mortgage sooner.

Therefore, compare two things:

Your monthly payment.

And:

The total amount you may repay.

A Simple Example

Imagine you owe:

£150,000

You have:

20 years left.

If you extend the term, your monthly payment may fall.

However, you may pay interest for longer.

On the other hand, a shorter term may mean a higher monthly payment.

However, you may clear the mortgage sooner.

Therefore, a lower monthly payment does not always mean a cheaper mortgage.

What Is Loan-to-Value?

Loan-to-value is usually called LTV.

It shows how much you owe compared with the value of your home.

For example:

Home value: £250,000

Mortgage left: £150,000

The calculation is:

£150,000 ÷ £250,000 × 100 = 60%

Therefore, your LTV is:

60%

In simple terms, you are borrowing 60% of your home’s value.

Why Does LTV Matter?

Your LTV can affect the mortgage deals available to you.

Generally, borrowing less compared with your home’s value may give you more options.

Your LTV can change over time.

For example, your mortgage may fall as you make payments.

Your home’s value may also rise or fall.

Therefore, your LTV can change even if you do nothing.

Mortgage deals are often grouped into bands.

For example:

  • 95% LTV.
  • 90% LTV.
  • 85% LTV.
  • 80% LTV.
  • 75% LTV.
  • 60% LTV.

Can You Borrow More?

Yes, sometimes.

You may be able to borrow extra money when you remortgage.

People sometimes do this for:

  • Home improvements.
  • Major repairs.
  • Other large costs.

However, borrowing more increases the amount you owe.

It may also mean paying interest for many years.

Therefore, think carefully before increasing your mortgage.

Using a Remortgage for Home Improvements

Some people borrow more to improve their home.

For example, they may pay for:

  • A new kitchen.
  • A new roof.
  • Energy improvements.
  • An extension.
  • Major repairs.

However, spreading the cost over a long mortgage can increase the total amount you repay.

Therefore, compare the different ways of paying for the work.

Using a Remortgage to Pay Off Debt

Some people use a remortgage to pay off other debts.

For example:

  • Credit cards.
  • Personal loans.
  • Other borrowing.

This may reduce the number of payments you make each month.

It may also reduce your monthly costs.

However, there are risks.

You could turn unsecured debt into debt secured against your home.

You may also repay the debt over a much longer period.

As a result, you could pay more overall.

Therefore, think carefully before adding other debts to your mortgage.

What Is an Early Repayment Charge?

An Early Repayment Charge, or ERC, is a charge you may have to pay if you leave your mortgage early.

It is common with fixed-rate deals.

The charge can sometimes be large.

Therefore, before changing your mortgage, check:

  • Does an ERC apply?
  • How much is it?
  • When does it end?

In some cases, waiting until the charge ends may make more sense.

However, this will depend on your mortgage and the new deals available.

Other Costs

There may also be other costs when you remortgage.

These may include:

  • Mortgage fees.
  • Arrangement fees.
  • Valuation fees.
  • Legal fees.
  • Exit fees.

Some lenders may offer:

  • A free valuation.
  • Free legal work.
  • Cashback.

However, these offers should not be viewed on their own.

Instead, look at the whole deal.

Should You Add Fees to Your Mortgage?

Sometimes, you can add a mortgage fee to your mortgage.

This means you do not have to pay the fee straight away.

However, you may then pay interest on that fee.

For example:

Mortgage fee: £1,000

If you add it to your mortgage, you may repay more than £1,000 over time.

This is because interest may also be charged.

Therefore, compare both options if you can.

Will Your Home Be Valued Again?

The new lender may check the value of your home.

This helps it work out your LTV.

Sometimes, this can be done automatically.

In other cases, someone may visit the property.

The lender will decide what is needed.

Remember, this is a mortgage valuation.

It is not the same as a full property survey.

Will the Lender Check Your Finances?

Usually, yes.

If you move to a new lender, you will normally need to make a new application.

The lender may check:

  • Your income.
  • Your regular spending.
  • Your debts.
  • Your credit commitments.
  • Your credit history.
  • Your job.
  • How much you want to borrow.

Therefore, being able to afford your current mortgage does not guarantee that you will be accepted for a new one.

What If Your Circumstances Have Changed?

Your situation may have changed since you took out your current mortgage.

For example:

  • Your income may have gone up.
  • Your income may have gone down.
  • You may have changed jobs.
  • You may have taken on more debt.
  • Your living costs may have increased.

As a result, the deals available to you may have changed.

Therefore, it can help to look at your options well before your current deal ends.

Stay or Move?

When remortgaging, you usually have two main choices.

Stay With Your Current Lender

You choose a new deal with the same lender.

This may be quicker and simpler.

Move to a New Lender

You apply for a mortgage with another lender.

This may give you more choices.

However, it may involve more checks.

Therefore, compare both options.

Do not assume that staying is always cheaper.

Likewise, do not assume that moving is always better.

A Simple Example

Imagine you owe:

£180,000

Your current deal is ending.

You find two possible mortgages.

Option One

A lower interest rate.

However, there is a large fee.

Option Two

A slightly higher rate.

However, there is no fee.

The cheaper option will depend on:

  • How much you owe.
  • The interest rate.
  • The fees.
  • How long you keep the deal.

Therefore, compare the full cost.

Do not compare the interest rate alone.

How Does Remortgaging Work?

The process usually happens in a few steps.

Step 1: Check Your Current Mortgage

Find out:

  • When your deal ends.
  • Whether an ERC applies.
  • How much you still owe.

Step 2: Check Your Home’s Value

Next, get an idea of what your home is worth.

Then, work out your LTV.

Step 3: Compare Your Options

Look at:

  • Interest rates.
  • Fees.
  • Fixed or variable rates.
  • Mortgage terms.
  • Overpayment rules.
  • Early repayment charges.

Step 4: Apply

Once you choose a mortgage, you can apply.

The lender will then carry out its checks.

Step 5: Complete the Remortgage

The new mortgage pays off the old one.

After that, you start making payments under the new deal.

Do Not Leave It Too Late

Remortgaging can take time.

Therefore, it is usually better to start looking before your current deal ends.

If you leave it too late, you may feel rushed.

As a result, you may not have enough time to compare your options properly.

So, make a note of the date your current deal ends.

Then, start looking at your choices early.

Think About Your Future Plans

The lowest interest rate may not always be the best choice.

Your future plans matter too.

For example, ask yourself:

  • Am I likely to move home soon?
  • Do I want to make overpayments?
  • Might I receive a lump sum?
  • Am I planning major work on my home?
  • Do I want my payments to stay the same for a while?

Your answers may help you choose a more suitable mortgage.

Remortgaging Checklist

Before making a decision, check the following.

Your Current Mortgage

  • When does my deal end?
  • What rate am I paying?
  • Is there an ERC?
  • How much do I still owe?

Your Home

  • What is my home worth?
  • What is my LTV?

Your New Mortgage

  • What is the interest rate?
  • Is it fixed or variable?
  • How long does the deal last?
  • Are there any fees?
  • Can I make overpayments?
  • Is there an ERC?

Your Budget

  • What can I comfortably afford each month?
  • Could I afford higher payments?
  • Do I need to borrow more?
  • Am I likely to move?
  • Do I have money set aside for emergencies?

Compare Remortgaging Options With Energility

Energility is developing its future mortgage comparison service.

Our aim is to make mortgage comparison easier to understand.

Over the coming months, we plan to introduce mortgage comparison tools.

In the meantime, you can use our free online guides.

These explain:

  • How mortgages work.
  • Fixed and variable rates.
  • Mortgage affordability.
  • Loan-to-value.
  • Mortgage fees.
  • Early repayment charges.
  • Moving home.
  • First-time buyer mortgages.

We believe comparison works best when you understand the basics first.

Therefore, our aim is to combine comparison tools with clear online guidance.

Quick Summary

Remortgaging means changing your mortgage without moving home.

You can stay with your current lender.

Alternatively, you can move to a new one.

Before you make a decision:

First, check when your current deal ends.

Next, find out if an Early Repayment Charge applies.

Then, check how much you owe and what your home is worth.

After that, compare the full cost of different mortgages.

Finally, think about your future plans.

Most importantly:

Do not choose a mortgage based on the interest rate alone.

Also look at the fees.

Consider how flexible the mortgage is.

Then make sure the payments fit comfortably within your budget.

Energility

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