How to Remortgage
If you own a home with a mortgage, remortgaging is likely something you will have to face during your ownership. Over 25 million homeowners in the UK have got on the property ladder with the help of the mortgage sector.
Understanding the process is essential to finding the right deal for you. Below we look at how to remortgage, the documents you need, how much it costs and how long the process takes.
What Does Remortgage Mean?
Remortgaging is when a new mortgage replaces the existing mortgage on a property.
If you stay with your current mortgage lender, the process is called Product Transfer. You will be moved from one mortgage product to another.
If you decide to move mortgage lenders, then you will need to remortgage. This takes longer and will need a remortgage solicitor.
For more information on remortgaging see: What is Remortgaging?
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When and Why Should You Remortgage?
There are many reasons why people decide to remortgage their homes. Some are more common than others and the time it takes varies depending on the reason for remortgaging.
Additionally, some of the reasons for remortgaging are time-sensitive. For those at the end of their mortgage term, they will want to remortgage at this point. If interest rates are low, people may want to take advantage of this before rates increase again.End of Current Term
One of the common reasons why someone remortgages is because their fixed-term mortgage is coming to an end.
Once the term is up, you will be moved to your lender's Standard Variable Rate. This is usually higher than a fixed-rate offer. Variable rates can also fluctuate based on the Bank of England’s base rate and economic factors. As a result, many people opt to remortgage to stay on a fixed-rate mortgage.Equity Release
Another reason why someone may want to remortgage is to release equity tied up in the home. People do this if they want to use the money for renovations or a large purchase such as a car or holiday.
Your equity includes your initial deposit for the home and what you have repaid on your mortgage to date. Be aware that this is only available for homeowners over the age of 55 and the property must be worth upwards of £70,000.Interest Rates
When interest rates are low, some people take advantage of this and opt to remortgage their homes. You can incur charges if you do this before the end of your fixed term. However, the long-term financial savings may be worth this.
Change in Financial Circumstances
If you have had a pay rise or come into money, you may want to remortgage to pay off your home loan quicker. This would be done with higher monthly payments. You could also opt to make overpayments.
If you are struggling with current payments, you may want to extend your mortgage. This would result in lower monthly payments. Be aware that you will pay more in interest over the long term if you decide to do this.
Reduce Loan-to-Value to Get a Better Rate
Loan-to-value (LTV) is how much of the property’s value you borrow as a mortgage. The lower your LTV, the better the mortgage deal is likely to be. Interest rates are more likely to be lower, saving you money long term. As a result, some people opt to remortgage to reduce their LTV and get a better rate. The best mortgage deals normally have a maximum LTV of 60%.
Flexible Deal
These allow you to take payment holidays or combine your savings or current accounts with your mortgage. Be aware that these will come with higher interest rates and strict criteria. You should ensure this is the right deal for you and that you will make the most of the benefits.
When and Why Shouldn’t You Remortgage?
There are circumstances where remortgaging would be a bad idea or at least bad timing. Below we look at some of the key reasons why you shouldn’t remortgage.
Your Remaining Mortgage is Small
It may not be worth remortgaging if your remaining mortgage is under £50,000. This is because you are unlikely to offset the fees and make savings. Additionally, some lenders won’t offer a remortgage if the remaining loan is under £25,000.
It’s Costly to Remortgage
If you are remortgaging before the end of your fixed period, you could face an early repayment charge. If the fee is large and you have no major incentive to end the deal early, it would be better to stay the term of the mortgage.
Your Circumstances Have Changed
If you have lost your job, become self-employed or have had credit problems since taking out your mortgage, it may not be the best time to remortgage. Instead, discuss your options with a mortgage broker. They can help you find the best solution for your circumstances.
You Have Little Equity in the Home
If you have little equity in the home - the amount you own outright - you will likely struggle to remortgage. If you need to borrow more than 90% of the value of the home, lenders will be reluctant to consider your application.
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What Does the Remortgaging Process Involve?
First, you will either need to speak to your current lender or find a deal with a new lender. From here you can start the process of applying for a remortgage. Below we look at the steps involved
1. Agreement in Principle
As with a mortgage, you must first apply for an Agreement in Principle (AIP) when remortgaging. Be aware that this is not a guarantee from the lender but it can tell you what they can offer you.
2. Apply for your Remortgage
Once you have the AIP, you can formally apply for a remortgage offer with the lender. This is likely to be more straightforward if you are staying with your current lender.
If you are remortgaging with a different lender, ensure all documents are complete and accurate. This avoids delays in the process.
3. House Valuation
Before your application is approved, the lender will arrange a valuation on your home. This is so the lender can be sure that the home is worth what they are lending you.
4. Conveyancing
If you are staying with the same lender, you will not need a conveyancing solicitor.
When moving to a different lender, you need to consider the cost and time of the conveyancing process. There will likely be more paperwork involved if the property is leasehold.5. Lender Decision
The lender will consider the property valuation, your credit history and your application. They will then make a decision on the loan.
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How Long Does Remortgaging Take?
The average timescale for a remortgage is between four and eight weeks.
It can be a shorter process but it will likely be longer if there are any delays or complications. If you stay with the same lender, a product transfer may be quicker than a remortgage.
Using a different lender will usually take longer as you will need to factor in using a conveyancer.
How Much Does It Cost to Remortgage
The average cost of remortgaging a property is £3,553. This is based on our own data, using the average conveyancing fees, and the cost of leaving a deal and taking on a new one.
This does not include the percentage of the property value that may be due as part of an early repayment charge.Remortgaging fees will depend on a few factors. If you move to a different lender, it is likely to cost more as you will need a conveyancer. Using a mortgage broker will also add to the cost.
For more information on remortgaging fees see: Solicitor Fees for Remortgage
Should I add Remortgage Fees to my Loan?
Some lenders may allow you to add your remortgage fees to your loan. This means you won’t have to pay the fees upfront. It does however mean you are paying more on your repayments over time, including interest.
