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Home  »  Mortgages  »  Guide: Remortgages
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Guide to remortgaging

A comprehensive guide on remortgaging

What is remortgaging?

Remortgaging means taking out a new mortgage on the same property and replacing your existing mortgage with this new one. The existing mortgage is paid off in full and closed, leaving you with a new deal in place

You can choose to stay with your existing lender or can choose to go with a new lender who offers you cheaper interest rates or better payment terms.

Working with a mortgage broker

If you are considering taking out a mortgage, then speaking to an expert mortgage broker is essential. Mortgage brokers have access to a wide range of products, will liaise with solicitors, conduct admin and support, offer advice on any additional bolt-on products you may consider when purchasing a property (such as life insurance or/and a will) and can even help speed up the entire process.
Find out more

How does remortgaging work?

When remortgaging, the calculation will likely use the same criteria as you would find when taking out the initial mortgage. Unless you go to your original lender, you will find that your remortgage application will follow a similar process to that of your original mortgage.

The lender will therefore be looking at the mortgage balance to property value to determine the Loan-To-Value (LTV), as well as your income multiples to ensure you have the means to pay back the monthly amount for the whole loan term.

The good thing with remortgaging is that you will edge towards better deals as the LTV % decreases over time. As you remortgage, you may well move into a better bracket for borrowing at lower interest rates.


Further reading: Why use a mortgage broker? 

Steps to taking out a remortgage

01
Fill in a web application

Fill in a web application

02
Speak to a mortgage broker

Speak to a mortgage broker

03
Find a mortgage product that works for you

Find a mortgage product that works for you

Applying For A Remortgage
If you are still in the introductory period of your fixed-rate mortgage but approaching the end, you will be notified by your lender that you are approaching the point where they switch you to their standard variable rate mortgage and then likely be offered the opportunity to remortgage with them at a new fixed rate.

However, you have the option of choosing a different lender and so should consult a mortgage broker to find the best possible deal for you. They have access to a greater range of deals within the market, if not the whole mortgage market. Your mortgage broker will also be able to help you with the administration, setup, time management, and any additional advice you may need.

Note: Although brokers charge a fee that can be added to your remortgage deal, they can greatly reduce the stress involved in the application and approval process of a remortgage.

There are many reasons why you might want to remortgage.

Lower interest rates

When you take out a new mortgage, it is likely to be a fixed-rate mortgage. This means your lender will offer you a fixed interest rate for a small period of time, usually 2-5 years. The fixed interest rate is normally very low to entice new customers. Once this fixed term ends, you will move onto the lender's standard variable rate (SVR). The SVR is nearly always more expensive than the fixed rate offered to new customers. Therefore, depending on how much you owe (your mortgage balance), moving to the SVR could mean much higher monthly mortgage repayments for you. However, once your fixed-rate term ends, you are free (without incurring an early repayment charge) to remortgage and find a new fixed-rate mortgage.

Change in Property Price

If your property price changes it will mean your loan-to-value (LTV) also changes. If the property price goes up and therefore the LTV goes down, you will have more equity available in your property. Some people choose to remortgage and spread their payments over a longer-term when this happens in order to decrease the amount they repay each month.

Consolidate debt

If you have debts, it’s possible to add these to your mortgage balance when you remortgage. This might be used as a way to consolidate them into one payment and potentially save on the interest due for the debts. Several reasons to determine whether or not you would want to get a remortgage to consolidate debt. • You have the affordability to keep up with the monthly payments until the loan term is over and your debt is settled • You want to take the loan to get your financial life back in order by clearing any outstanding debt • You want a loan that has a lower interest rate and less total payable amount compared with the debt interest rate

Home improvements

If you are looking to borrow money to make home improvements such as adding extra bedrooms or bathrooms, it’s possible to do this with a remortgage. For example, if your home’s value is £150,000 and you have a mortgage balance of £100,000, it means you have £50,000 of equity in your property. Lets say you want to convert your loft into another room and it’s going to cost you £20,000. You can release the equity in your home by remortgaging your property. In this example you would take out a new mortgage for £120,000. You’d therefore pay the old mortgage (£100,000) off and be left with £20,000 to renovate your home. You might find that the interest rate on the remortgage is lower and so you’ll pay back less overall than if you took out an additional secured or personal loan.

Switching payment type

If you are looking to switch to a new mortgage type, you can do this with a remortgage. For example, an interest-only mortgage is beneficial for a lot of reasons but if you decide to pay the loan amount as well as the interest, you can switch your payment type from an interest-only to a repayment mortgage with a new remortgage deal. Note: Switching payment types from interest-only to repayment is not only possible but is often encouraged by a lot of mortgage lenders.

The Ability To Make Overpayments

Overpaying your existing mortgage means you can pay your mortgage balance quicker. However, if your current lender does not allow you to make overpayments, you can look for a more flexible remortgage deal that allows you to make a larger payment each month with or without switching your payment type. Note: You may have to pay an Early Repayment Charge (ERC) if your lender has a set limit (allowance) regarding mortgage overpayment, if you repay the mortgage early or if you decide to remortgage / switch deals before the fixed rate deadline ends.

Will I always be able to remortgage?

If your income and debt levels haven’t changed dramatically, chances are that you will easily be able to remortgage. If your income has dropped to a point where the lenders would worry that you may default on repayments then they may not allow you to remortgage.

Things to be aware of when remortgaging

You can be charged certain fees by your existing lender as well as the remortgage lender. There might also be additional fees involved in the process.

 

Costs to leave your existing deal

 

Early repayment charges

If you are looking to remortgage while still being on a fixed-rate mortgage, you will likely have an early repayment charge. It’s best to speak to your lender about what this might be, but it’s likely to be between 1-5% of the outstanding balance.

 

Costs for a remortgage deal

 

Arrangement fee

An arrangement fee is charged to cover the lender’s administration costs. Lenders can offer you a low fee/high-rate deal or a high fee/low rate deal. A mortgage broker can advise you on whether to add the arrangement fee to the remortgage or pay it as soon as you can to avoid interest on it.

Booking fee

A few lenders charge a reservation or booking fee to secure a tracker, discount, or fixed-rate remortgage deal. You usually have to pay this fee when you submit your remortgage application.

Valuation fee

Your property can increase or decrease in value since the last time it was valued when you applied for your first mortgage. Therefore, if you want to remortgage, the lender will have to ascertain the true value of your property. A valuation fee can be around £400 to £600 in most cases.

Legal fee

To remove the original lender’s interest from the property and assign it to a new lender, sometimes, you have to pay the legal fees associated with the process. However, a lot of remortgage deals come with a free legal package but it is a good idea to check if your lender is charging this or not.

Broker fee

When you use a broker for a remortgage deal, they can charge you a broker fee that can be either a percentage of the loan amount or an agreed-upon fixed fee. The broker fee varies from broker to broker.

Mortgage brokers help facilitate the process of remortgaging and often save you a lot of money in lower interest rates and discounts on various fees. If you want to speak to a mortgage broker that specialises in remortgaging, click get started below and one of our expert advisors will call you straight back

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