What is a remortgage?
If you are already paying a mortgage, switching to a new deal is called a remortgage. Your new mortgage is used to pay off your existing one.
For example, if your house is worth £200,000 and you have an outstanding mortgage of £100,000, you could get a new mortgage for £100,000. This would be used to pay off the old one, and you can then start repaying your new mortgage instead.
Getting a new mortgage with a new lender or your current one could save you money if you are able to get a deal with a lower interest rate.
When can you get a remortgage?
You can switch your mortgage deal at any time but you may have to pay fees.
If you have a fixed, discount, tracker or capped mortgage, you will get a promotional interest rate for a specific number of years.
If you pay off your mortgage before that deal ends you will usually have to pay an early repayment charge. This applies whether you clear the balance yourself or get a remortgage.
When the promotional term ends, your lender will usually put you on their standard variable rate (SVR), which is normally higher. You could switch after then to avoid the higher interest rate and because you will not usually have to pay the early repayment charge.
You can also remortgage if you want to move to a new fixed rate deal for the security of an interest rate that will not increase for several years.
You can remortgage as often as you like, but it can be expensive to keep changing deals if you have to pay fees each time.
Should you remortgage?
It is worth getting a remortgage if the amount you can save is more than how much you have to pay in fees.
How much does it cost?
You will have to pay:
Fees for paying off your old mortgage: You may pay an early repayment charge and an exit fee of £50 to £200.
Fees that come with your new mortgage: These include application fees charged by the lender, solicitor fees for the searches you need and survey fees* charged by your lender for valuing the property.
Here is everything you need to know about all of the fees charged on mortgages.
How much are early repayment charges?
Early repayment charges are usually a percentage of the amount you owe. Some charge a flat rate like 4%. On a £50,000 remaining balance, that would come to £2,000.
Other lenders charge a higher percentage the longer you have left on your mortgage. For example, a five year fixed mortgage could charge:
5% if you pay it off in the first year (£2,500 on a £50,000 balance)
4% in the second year (£2,000 on a £50,000 balance)
3% in the third year (£1,500 on a £50,000 balance)
2% in the fourth year (£1,000 on a £50,000 balance)
1% in the final year (£500 on a £50,000 balance)
You can check the costs on your mortgage statement, in your terms and conditions or by asking your lender for a redemption statement. This will confirm how much you owe and what fees you need to pay to clear the balance.
How much can you save?
If you can get a new mortgage with a lower interest rate you could pay:
Less overall because the total amount of interest you pay will fall
Lower monthly repayments
For example, if you had an outstanding balance of £130,000 and 20 years left on a mortgage with 4% interest, it could be cheaper to switch to a fixed rate deal with 2.5% interest. You could pay:
|Mortgage||Interest rate||Monthly payment||Cost over 5 years|
|New fixed rate||2.5%||£689||£41,340|
How to decide
If you want to get a remortgage to save money, make sure the new lower interest rate is not cancelled out by fees.
Work out how much money you will save with a cheaper mortgage and subtract the fees to find out how much better off you will be with a new mortgage.
For example, with a balance of £130,000, 20 years left and 3% interest, it could be cheaper to switch to a fixed rate deal with 2.5% interest if fees were £500. You could pay:
|Mortgage||Interest rate||Cost over 5 years||Cost with fees|
|New fixed rate||2.5%||£41,340||£41,840|
If you paid fees of £2,000 with the above example, moving to the fixed rate would cost £43,340, which is more expensive than keeping the current deal.
How to get a remortgage
Check how much your property is worth - this guide explains how.
Check how much you owe on your mortgage by asking your lender for a redemption statement or by checking your mortgage statement or online account.
Make sure you will still save money by remortgaging even after you have paid all the fees on your old and new mortgage.
Check that you can afford the new mortgage you choose.
Apply for the new mortgage. When it completes, your solicitor will arrange the transfer of the funds to pay off your old mortgage.
Here is everything you need to know about buying a home, including getting your home valued and appointing a solicitor.
If your existing lender can offer you a good deal, remortgaging with them should be quicker than switching to a new lender and there may be less to pay in fees.
If you find a new mortgage that is better than anything your current lender offers, ask them if they can match or beat it.
How long does it take?
Getting a remortgage usually takes between four and eight weeks. It can take longer if there are any complications like an application being rejected.
The process is likely to take longer if you switch lenders instead of getting a new deal with your current mortgage company.
If you want your new deal to start when your current one expires, start the process at least two months before.
Yes, you can get a new mortgage in principle agreed in advance. This is an offer a lender makes to give you a particular mortgage once they have looked at your application and credit record.
Mortgages in principle can remain valid for up to three months, but this varies. Check how long the deal you want will remain available.
Will you be able to remortgage?
When you apply for a remortgage, your new lender will decide whether to accept you based on the same criteria as getting a brand new mortgage.
Each lender has different requirements, but they will look at your income, current financial situation and your credit record.
Yes, applying for any type of credit, including a mortgage, will show on your credit record.
However, getting a better mortgage deal could improve your financial circumstances, which could make your credit record look more attractive to lenders in the future.
What happens to your current equity?
Mortgages let you borrow a percentage of a property's value, which is called its loan to value (LTV). A lower LTV usually means you can get a lower interest rate.
You can often get a better deal because the amount you borrow is usually a smaller percentage of your property's value than when you got your first mortgage.
For example, if you originally bought your home for £200,000 with a 90% LTV mortgage, your mortgage would have been for £180,000 (the other 10% would be covered by a £20,000 deposit).
If you have now repaid £80,000 of your capital and have £100,000 left to pay, your new LTV would be 50%, assuming your home is still worth £200,000.
You should be able to find a much cheaper mortgage with a 50% LTV than with 90%. This means building equity in your property can save you money whenever you remortgage.
Your LTV will be lower still if your property has gone up in value since you got your last mortgage.
No, because you can use the equity you have in your home instead of a deposit. This is the percentage of your home you already own yourself.
However, you could add money you have saved to this amount so you can get a smaller mortgage. Having a lower LTV should mean you can get a cheaper mortgage.