So, you’ve been in your home for a while, sipping coffee and basking in the glory of homeownership. But now you’re hearing whispers about remortgaging. But what exactly does it mean? When, how and why should you remortgage? Let’s break it down step-by-step…
What is a remortgage?
Remortgaging is like giving your current mortgage a makeover. Instead of sticking with the same lender and deal you’ve had for years, you switch things up by either moving to a different lender or negotiating a better deal with your current one. Think of it as refinancing your home loan but with the potential for saving money (and who doesn’t love that?).
When can you remortgage?
Technically, you can remortgage at any time, but here are a few common scenarios:
Your Fixed-Rate Deal is Coming to an End: Most people remortgage when their fixed-rate period is ending. If you do nothing, your mortgage might switch to the lender’s standard variable rate (SVR), which can often be more a lot expensive than a fixed deal.
Interest Rates Have Dropped: If interest rates are looking lower than the one you’re currently on, it might be a good time to remortgage and snag a better rate.
Your Home Value Has Increased: If your property has shot up in value (lucky you!), remortgaging could let you access better loan-to-value (LTV) deals, meaning you could get a lower interest rate.
You Want to Borrow More: Maybe you’re planning an epic kitchen extension, or you’ve got your eye on some swanky new furniture. Remortgaging can be a way to release equity (fancy talk for borrowing against your home’s increased value).
You Want to Overpay or Change Terms: If your current mortgage deal has strict rules on overpayments or you want to shorten/lengthen your mortgage term, remortgaging can give you more flexibility.
Why remortgage your house?
There are plenty of reasons to consider remortgaging, and here are a few key ones:
Save Money: The most obvious benefit! If you can lock in a lower interest rate, you’ll pay less in monthly repayments and save in the long run.
Switch Mortgage Type: You might want to switch from a variable rate or tracker mortgage to a fixed rate to give you more financial stability (no more surprises with fluctuating payments).
Access Cash: By remortgaging, you can free up cash tied into your home’s equity. Use it for home improvements, debt consolidation, or that long-overdue holiday.
Better Terms: You might find a deal that allows you to overpay without penalties or gives you more control over the term of your mortgage.
The step-by-step remortgaging process
Okay, so now you know why you might remortgage—let’s look at how it works. Don’t worry, it’s not as complicated as it sounds! A typical remortgage should take as little as 4 weeks; and up to 12 weeks to complete.
Step 1: Check Your Current Mortgage Deal
Start by reviewing your current mortgage to see if there are any early repayment charges or exit fees. Most lenders charge you a penalty if you leave before the fixed term is up, so factor this into your calculations. How long is remaining on your mortgage term? Are you comfortable you will have repaid your mortgage by the time you retire? Remortgaging can give you an opportunity to increase or decrease your mortgage term.
Step 2: Assess Your Home’s Value
Knowing the current value of your property helps you understand your loan-to-value ratio (LTV), which plays a big part in the remortgaging deals available to you. Lenders offer better interest rates the lower the LTV.
For example, you might be on a 5.2% interest rate when you first buy your home with a 10% deposit (90% LTV). After 5 years, through overpayments and an increase in your property value, you might have 20% equity in the home, so now you can access 80% LTV rates which may be more in the region of 4%.
You can get a rough idea of your property’s value by checking websites like Zoopla, or opt for a professional valuation (although estate agents won’t be likely to offer this service unless you’re valuing the home to sell).
Step 3: Do the Math
Calculate how much you owe on your mortgage, and compare it with potential new deals. Use online remortgage calculators to see if switching will actually save you money after fees are accounted for.
Step 4: Start Shopping for Deals
Here’s where it gets exciting—you can start hunting for new mortgage deals! Compare interest rates, repayment terms, and any flexibility for overpayments or payment holidays. You can do this yourself or, if the thought of browsing through rates makes you break out in a cold sweat, get a mortgage broker to do the heavy lifting.
Step 5: Apply for Your New Mortgage
Once you’ve found a shiny new mortgage deal, it’s time to apply. This involves submitting your financial information, just like when you first bought your house. Be prepared to hand over details like proof of income, bank statements, your credit report, and evidence of your home’s value.
Step 6: Valuation and Legal Work
Your new lender will want to do a valuation of your property – this differs from a ‘market value’ valuation as they are purely assessing the property as good security for the mortgage. You’ll need to instruct a solicitor or conveyancer to handle the legal bits (like transferring the mortgage from your old lender to the new one), although many lenders will offer free legals if you opt for using their conveyancer which could save you some £££’s in fees.
Step 7: Completion Day
Once all the paperwork is sorted, and the valuation checks out, it’s time for completion day! The new lender pays off your old mortgage, and your shiny new deal officially kicks in. Pop the kettle on, because you’ve successfully remortgaged!
What are the costs involved for a remortgage?
Sadly, not everything is free in life, and remortgaging can come with a few fees. These might include:
Exit Fees: Some lenders charge you a fee for leaving your current mortgage deal. This may include an early repayment charge if you are remortgaging before your fixed rate period has ended, and a termination fee for settling the mortgage.
Valuation Fees: Your new lender might charge for the valuation of your property, although a standard valuation is generally included free of charge.
Solicitor Fees: You’ll need to pay your solicitor or conveyancer for their time and expertise. In the currently competitive mortgage market, it’s common for lenders to offer free legals as an incentive for clients to come on board.
Arrangement Fees: Sometimes called a ‘product fee’, new mortgage deals might have an arrangement fee, so factor that into your calculations.
Final Thoughts
Remortgaging might sound like a hassle, but if it means saving money, accessing cash, or getting a better deal, it’s definitely worth considering. Whether you’re looking to lower your monthly repayments, switch mortgage types, or free up equity for a big project, remortgaging can be a great way to give your mortgage a refresh.
Just remember to do your homework, crunch the numbers, and compare deals to make sure remortgaging is the right move for you. And if all the jargon has your head spinning, don’t be afraid to get professional help!
Happy remortgaging!