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Tim Leonard
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Remortgaging is the process of switching the mortgage you have on a property to a different mortgage deal. You may want to remortgage to save money if you’ve found a better deal, or to raise cash by borrowing more against your home without having to sell up.
The remortgage deal you can get will mainly depend on the amount of equity you have in your property, and whether a lender decides you can afford the repayments.
Read on to find out more about what remortgaging is and the remortgage process as a whole.
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Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.
What is a remortgage?
A remortgage is when you move your mortgage to a new deal with another lender, or move to a different deal with your current lender.
Switching to a new mortgage with your current lender is sometimes known as a product transfer. Not much will change other than the amount you repay each month, assuming your new rate is different.
If you remortgage with a different lender, they will pay off your existing mortgage and your debt transfers over to them. This is likely to involve more admin and additional fees, but you could still save money overall with a better all around remortgage deal.
» MORE: Should you remortgage with the same lender?
How remortgaging works
There are a number of steps you’ll normally take as part of the remortgaging process.
Research your options
Comparing the remortgage options offered by different lenders improves your chances of getting a good deal that is suited to you. Generally you should start researching around six months before your current deal is due to end.
Get an agreement in principle
Getting an agreement in principle – or a decision in principle – from a lender gives you a good idea if you’ll be able to borrow the amount you need. This isn’t a definite guarantee you’ll get the remortgage deal you want, but the check can usually be done without affecting your credit score.
Factor in remortgaging costs
The main cost of any mortgage is usually the rate, but the remortgage costs that may be involved should be considered, too.
The main fees charged by the lender you are moving to may include:
- arrangement fees for getting the remortgage
- legal fees for using a conveyancing solicitor
- valuation fees for the property
- admin or account fees for setting up the new mortgage
And for the lender you are leaving, there may be:
- an early repayment charge if you’re exiting a deal before it’s due to end
- exit fees, or a closure fee, for transferring the loan to a new lender
Make your remortgage application
If you’ve found the right remortgage deal for you, and have an agreement in principle, you’re ready to begin the application process.
Why do people remortgage?
The main reason homeowners remortgage is because they are reaching the end of their lender’s initial fixed rate or discounted period and they want to save money. This is usually two to five years into the mortgage term, when the interest rate reverts to the lender’s standard variable rate (SVR), which is generally higher and will cost you more each month.
Some of the other possible reasons and triggers for remortgaging may include:
- You want to lock in today’s interest rates, as you’re concerned about future rises.
- Interest rates have fallen since you first got your mortgage, and you want to take advantage of a cheaper deal with a lower interest rate.
- You want to remortgage to release equity from your property to help pay for home improvements or other large expenses.
- You want to remortgage to consolidate other debts. If you’re considering this, talk to a financial adviser or a debt adviser before going ahead.
- Your property has gained in value over time or your repayments mean you own more equity, and you can access lower LTV deals and better rates.
- You prefer to switch to a longer fixed interest period for peace of mind, perhaps five years instead of your current two-year fix.
- You no longer want to be locked into a lengthy fixed-rate period and would prefer a shorter fixed rate, or one that varies alongside interest rate movements.
- You would like to move to a more flexible mortgage that takes account of your savings, such as an offset mortgage, or allows you to make overpayments without penalties.
If you’re not sure whether remortgaging is right for your situation, or when to do it, you may want to seek mortgage advice.
» MORE: Mortgage repayment calculator
When shouldn’t you remortgage?
Remortgaging isn’t always the right option. If your financial situation has worsened since you applied for your existing mortgage, or if your property has dropped in value, you may struggle to find cheaper remortgage rates. If your income has fallen or your credit score has dropped, remortgaging might be difficult.
This is because, just like when you first took out a mortgage, when you apply for a remortgage, a lender will assess your affordability. There are strict rules lenders must follow when deciding whether to let you borrow money.
It’s also worth knowing that not all mortgages can be ported to another property. So if you plan to move in the near future, find out if your remortgage could move with you.
If you remortgage before your current deal ends and during the lender’s tie-in period, you will likely have to pay an early repayment charge. This is a percentage of the remaining mortgage debt which usually reduces over time, meaning you pay less the later you leave. As this can run to thousands of pounds, it makes sense to check your current provider’s terms so you’re clear about their charges and what you would pay to exit at this stage.
If you only have a small mortgage left to pay off, you may find that some lenders have a minimum loan amount, usually £25,000, that they will accept as a remortgage.
How to remortgage
The remortgage application process can be very different depending on whether you’re staying with your current lender or moving elsewhere.
Remortgaging with a new lender
Applying to remortgage with a different lender will be similar to applying for your first mortgage.
The new lender must carry out various checks to make sure you’re eligible for the mortgage and can afford it. This means having your recent financial information on hand when you apply.
Usually this will include:
- payslips from the last three months as proof of income
- tax returns from the last few years if you’re self-employed
- bank statements from the last three years and your latest P60 tax form
If you’re applying for a joint remortgage, you will need to provide this information for both of you. You will also need to show proof of ID and address.
There’ll also be a hard credit check, which has the potential to affect your credit rating, and a property valuation.
Remortgaging with your current lender
If you are staying with your existing lender, and only switching deals without borrowing more, the process should be more straightforward. There’s likely to be less paperwork and a faster turnaround. A fresh credit check and property valuation may not be needed, and you may save on certain fees.
This can work to your advantage if your credit score has recently taken a hit or you’ve changed jobs. And, it does tend to be the easier option. However, it’s always important to check with other lenders to see if better deals are available elsewhere.
» MORE: See current mortgage rates
Getting ready to remortgage
Some of the things you can do to make sure you get the best deal include:
- Reducing your loan-to-value: The lowest remortgage rates are usually found at the lowest loan-to-values, if you have a smaller mortgage amount compared to the overall value of your property.
- Checking your credit score: Having a good credit score can help you access better remortgage options.
- Securing a deal early: Start checking what rates are on offer at least six months before your current mortgage ends and reserve one if you think it’s good.
- Comparing remortgage deals: Shopping around different lenders is essential to finding a good deal.
» MORE: Best mortgage lenders
How long does it take to remortgage?
The remortgage process generally takes between one and two months, but may take longer if all the paperwork is not in order.
So it makes sense to start researching your remortgage options early, perhaps six months before your existing deal is due to expire. In most cases, you are able to secure your new deal in advance of your old one coming to an end, so that the mortgage can seamlessly switch at the point the old deal expires.
» MORE: How long does a remortgage take?
Can you remortgage early?
You can remortgage at any time, but if your mortgage is still in its initial discount period, an early repayment charge may be payable.
This can be a significant cost – sometimes thousands of pounds. So before you remortgage, find out if this charge applies, how much it is and when it wouldn’t need to be paid. Once you have these answers, you’ll be able to work out the best timing for you.
» MORE: When can you remortgage?
Can you remortgage with bad credit?
The better your credit score, the easier it is to find good mortgage deals. The worse your score, the fewer you will have to choose from and the more you could have to pay in interest and fees. You may even struggle to get a new mortgage at all.
However, there are bad credit mortgage lenders that specialise in helping people who are struggling to get a mortgage from mainstream lenders.
If your credit situation is particularly bad, it may still be possible to remortgage with your current lender, especially if you have met your repayments and you’re not looking to make changes to your mortgage, aside from moving to a better deal. Moving to another lender isn’t impossible, but you will be treated like any other new mortgage customer and will have affordability checks.
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How to Remortgage to Consolidate Debt
Remortgaging to consolidate debt involves borrowing more on your mortgage to pay off other debts. This can make it easier to manage debt and could help lower your combined monthly debt repayments. However, more debt is secured against your home and you could end up paying more interest overall.
How to Remortgage to Pay for Home Improvements
Remortgaging to pay for home improvements or an extension may be an option if you have sufficient equity in your property and can prove to your lender a larger mortgage is affordable. Your income, outgoings and job status are some of the factors typically looked at when deciding whether you can afford a mortgage.