How to remortgage
Remortgaging is made simple with our expert advice guide. We cover why you might remortgage, when to remortgage, outline the costs of remortgaging and give you a step by step guide on how to do it.
What does “remortgage” mean?
When you remortgage you essentially switch from one mortgage to another on the home you already own. This might be a new deal with your existing lender, or you might decide to move to a new mortgage with a different lender.
Your mortgage is probably your biggest financial commitment. Your remortgage is as important a decision as when you first got your mortgage. There are lots of different options to choose from and you will be tied in for a few years. So here we cover what remortgaging entails and what you need to think about.
Why should I remortgage?
There are lots of reasons why you should remortgage:
- Your current mortgage term is coming to an end. At this point you’ll be put onto your lender’s standard variable Rate (SVR) which you want to avoid at all costs as the interest rate you’ll pay is almost always much higher.
- You want to increase your borrowing to free up cash for a major expense. You might be moving home and want to borrow more. Or have a home improvement project you want to fund, school fees to pay, a Buy to Let you want to invest in or debts you want to consolidate.
- To reduce your monthly repayments. You might be looking for a cheaper deal to make your mortgage more affordable every month. You don’t have to borrow more to switch to a better deal with better rates. There may be fees involved in exiting your current deal, but it could still be financially worth it.
- You want to overpay. You circumstances may have changed and you want to move to a mortgage provider that lets you overpay your mortgage by more than your current one.
- The Bank of England base rate has changed. If you’re on a variable rate mortgage then this might spur you to shop around for a more competitive rate
- Your property has increased in value. In which case a lower loan to value (LTV) might mean you qualify for a cheaper mortgage
- To fix your payments. If you know your circumstances are going to change or that rates are going to increase, you might remortgage to a fixed rate deal to give you certainty of your monthly mortgage outgoings
When should I remortgage?
- Every few years to ensure you are on the best deal and are not paying over the odds
- Set a reminder for three months before your fixed deal is due to end. This will give you plenty of time to shop around and get your remortgage application completed in time for you to simply switch onto a better deal
- If you’ve repaid a decent chunk off your mortgage over the past few years and gained equity in your home, switching to a different mortgage can reduce the interest you’ll pay every month because you’re able to take advantage of the most competitive deals.
- According to UK Finance’s mortgage lending trends, in May 2019, 21,370 new remortgages with additional borrowing (where the homeowner borrows more than their original mortgage) was nearly 20% more than in the same month of the previous year.
- Be aware that if you switch before your current mortgage deal has expired, you may be charged penalties. But do your sums as it may still be cheaper for you to pay the penalties and switch.
How to remortgage
Now you know why and when you should remortgage let’s look at how:
- Dig out your paperwork. Remind yourself of your current mortgage deal. What type of mortgage are you on? What is the current interest rate? How long have you got left to pay? What are your monthly payments?
- Speak to a fee-free mortgage broker or start looking on line. A mortgage adviser will be able to work out whether remortgaging will save you money. A whole of market broker is not tied to a particular lender and can compare a wide range of deals. They will include any penalties and fees in the calculations.
- Check with your lender. Give your current lender a chance to match the deal the broker finds you just in case they can offer something not widely advertised.
- Make your mortgage application. With our mortgage service from L&C there’s no need to tell the mortgage broker the information twice. They can use what you have already told them to populate the lenders application form so you can apply easily on-line. You can also track your application online.
- Get a conveyancing solicitor. If you remortgage with your current lender it’s considered a “product transfer” and requires no additional legal work. Otherwise, a remortgage will require you to have a solicitor or conveyancer, to help with the legal side of things. See our guide on Do I need a conveyancing solicitor when remortgaging
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
How long does remortgaging take?
Between 18-40 days from application to mortgage offer. But there are no hard and fast rules over the time it takes.
Remortgaging fees: how much will remortgaging cost?
|Early repayment charges||Typically 3-5% but often step down each year of your fixed rate mortgage|
|Exit fees (also know as account fee)||Usually £50 – £300|
|New lender arrangement fee||Typically £1000, but can be £1500+|
|Legal fees||From £300|
|Valuation fees||Typically £200 – £300|
As you can see from the above table of remortgage costs, there are a number of fees that can apply.
Early repayment: If you are on a fixed rate or discounted mortgage deal, it’s likely that you’ll have to pay an early repayment charge in order to end that arrangement. They are usually calculated as a % of the balance still owing on the mortgage. They typically cost 3-5% but often step down each year eg 5%, 4%, 3%, 2%, 1% each year of a 5 year fix.
Exit fees: Many lenders charge an exit fee for closing your mortgage account. It may be called something different. For example Halifax calls it a mortgage account fee. These are usually between £50 – £300.
Arrangement fees: Lenders can charge you for a number of things as part of the cost of ‘arranging’ the mortgage and may refer to them as product fees, admin fees or application fees. New lender arrangement fees usually cost around £1000 but can be £1500 or more.
Legal fees: The majority of legal fees on remortgages are usually covered by the lender themselves. If there is a charge it will need to be paid upfront and can’t be added onto the new mortgage. Remortgage legal fees can cost from £300. Read out guide to Do I need a conveyancing solicitor when I remortgage?
Valuation fees: These will depend on the value of the property and lenders will have their own fee scale. Typically though they are around £200-£300. In many cases a lender will offer a free valuation.
Should I add remortgage fees to my loan?
You can either pay the arrangement fees at the time of your remortgage or add them to your loan. The latter is a common choice, but interest will be added to the fees and they will end up costing more overall over the life of the mortgage term.
Compare remortgage rates
Whether you have a fixed or variable mortgage, it can be a good idea to shop around a little before your mortgage deal ends, and move to another one if it will save you money.
You can check your remortgage eligibility with our online mortgage finder, which allows you to see how much you can borrow and the mortgage deals you qualify for.
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Can I extend my existing mortgage?
- If you are locked into a certain mortgage deal there are still options. You could speak to your lender about remortgaging your current lending over a longer term, thus making your monthly repayments cheaper – although the mortgage will be more expensive over its lifetime.
- If you’re looking to access the equity in your house, but don’t want to move from your current lender because you have a great rate, again you may be able to extend the mortgage with your existing lender to arrange a larger loan as part of a remortgage.
Remortgaging for buy to let
By remortgaging you are releasing equity in your home to raise the cash needed to get a deposit for a buy to let mortgage, or possibly to even buy a property outright. You can speak to fee-free mortgage brokers at L&C today to check affordability on a remortgage and subsequent buy to let mortgage.
In addition to affordability, it is worth remembering that investing in a buy to let property is a major financial commitment. Check out our guide on Investing in Property before you remortgage for a buy to let.
What are the barriers to remortgaging?
- If you are in negative equity, it is very unlikely you will find a remortgage deal
- If you have any issues with your credit rating, this can also affect your chances of a new mortgage. Find out how to improve your credit rating here
- If you are self-employed you may struggle to remortgage if you can’t provide adequate evidence of your income and lenders will no longer allow you to self-certify. See our guide on self employed mortgages for more information
- Many of the bigger banks will lend into retirement but they will often have an upper age cap, with the majority asking for loans to be repaid before your 70th or 75th birthday. This means that if you’re aged 55 and over, you would have to pay the mortgage back in 20 years rather than the standard 25 years. For more information, see mortgages for over 50s.
- Lenders also often demand higher salaries relative to loans than in previous years and take into account your outgoings as well as your income when deciding to offer you a mortgage.
Can my existing mortgage lender offer the best deal?
You should speak to your existing lender about remortgaging. But you should also shop around for the best rate to ensure you can’t get a better deal elsewhere.
Using a fee-free mortgage broker can cut through this and provide the expert advice and leg work that’s required. They will be able to check what deals your current lender offers alongside what other lenders can offer.