Considering a remortgage and need to know how to go about it? This guide will take you through everything you need to know about the process, including how much remortgaging your property might cost you, the risks associated with remortgaging, and some common problems you may encounter.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Remortgaging is when you switch your existing mortgage to a new deal – either with the same lender, or a new one – while you remain in the same property. Like a regular mortgage, a remortgage is a loan taken out against the value of your property. People choose to remortgage for a variety of reasons, for example:
To get a better mortgage deal. Good mortgage deals tend to last only for a short time (usually just two to five years), after which, interest rates go up. To combat this, many people remortgage to find a cheaper rate when their original deal ends.
To raise additional finance: Some people remortgage to raise additional funds to carry out things like home improvement work on their property. This can be a sensible option, as the improvements may increase the property’s value in the long term.
To consolidate existing debt: Debt consolidation is another reason people remortgage. If you have multiple debts, using your home as security to acquire funds in order to clear them can be tempting. However, this can be risky should you fail to meet the repayments.
People also often remortgage for a combination of these reasons. This can be to get a better deal and raise some additional money for home improvements, for example. However, not all mortgages are created equal and failure to keep up with payments can result in your home being repossessed. Therefore, you should always shop around and seek professional expert advice before embarking on any major financial decision such as remortgaging.
Most people seeking to remortgage will have an existing mortgage or will have paid one off at some point. However, the finance industry and your circumstances are both subject to change, so it would be unwise to assume you don’t need to do your homework, even if you’ve had experience shopping around for mortgages before.
A good place to begin is with our range of mortgage calculators which can help you work out:
Mortgage overpayments refer to the act of repaying more than the amount specified in the agreement with your lender. This can be a lump sum – such as from a bonus or lottery win – or a regular amount, thanks to, say, receiving a pay rise at work.
Even if you decide to contact lenders directly to see what they can offer, it’s wise to make use of our remortgage comparison tool first so you can enter any negotiations as informed as possible.
In addition, you may wish to employ the services of a qualified mortgage advisor to ensure you're receiving professional and personalised advice as you talk to mortgage lenders.
This will depend on your individual reasons for seeking a remortgage in the first place. If you are looking to raise additional finance, then you may already expect your monthly payments to increase. However, many people remortgage to see if they can get a better deal, and it’s in these cases that you need to work out whether switching to a different provider will save you money – both in the short and long term.
Two factors will have the most significant effect on whether it’s worth you switching or not – the size and remaining term on your current mortgage.
Remember that remortgaging will cost you money. You will have to pay various administrative costs in the same way as if you were arranging a regular mortgage. You may also have to pay an early repayment fee to your existing lender (many lenders include these in their mortgage agreements to compensate for the interest they’ll lose out on if the customer pays off their mortgage early), so you will need to also take this into account.
For example, if switching your mortgage will cost you £500 and will only save you £300, then the saving doesn’t outweigh the cost, and remortgaging wouldn’t be worth your time, effort, or money. However, if the opposite were true, then it would be worth it.
Some lenders and brokers will offer fee free deals to try and tempt you in. However, they may have baked in those fees in their interest rates. In some circumstances, it may pay to employ the services of a professional mortgage advisor as they will be able to use their knowledge and experience to see where the costs truly lie. Of course, hiring an advisor will add to your overall costs – so you will need to factor the advisor’s fee into your expense calculations.
One way to get a preferable rate is to reduce the loan-to-value (LTV) of your mortgage. Put simply, the loan-to-value ratio represents the limit of how much you can borrow against the value of your property. Naturally, the lender won’t lend you an amount which exceeds the value of the property, as they will be unable to recover their investment by selling the property should you default on the mortgage.
Loan-to-value is represented as a percentage. It is calculated by dividing your outstanding mortgage amount by your property’s current value and multiplying the result by 100.
Note that the value of your property is likely to have risen in the time since you took out your original mortgage, so the amount you can borrow against its value may have risen too. Assuming you don’t need to borrow extra money, this means the loan-to-value for your remortgage will likely be more favourable to you, as the amount you need to borrow will have decreased, while the value of the property has increased.
This is why it’s important to make sure you have an up to date and accurate valuation of your property when remortgaging. Sometimes, the lender’s evaluation involves just a cursory external examination of the property and can miss lots of important details which can affect the value. If you think the lender’s evaluation is too low, then you may want to ask them to reconsider or have an independent evaluation carried out. You can use the selling prices for other properties in your area as evidence for this if the lender proves to be resistant.
Remember, if the evaluation is too low, you will likely be missing out on the most favourable rates and products, so it’s in your best interests to make sure it’s as accurate and current as possible.
We’ve covered remortgaging to get a better rate, but there are two other popular reasons people remortgage – flexibility and consolidation.
People often want the flexibility to overpay their mortgage. Or, they want an offset or current account mortgage where they can use their savings or other assets to temporarily or permanently reduce the amount of interest they pay – with the option to draw those assets back should they become needed again.
Consolidation is a little more complicated and fraught with risk. When people get into too much debt from non-mortgage sources – loans, credit cards, car finance, overdrafts, etc. – they often seek to remortgage to wrap all their finance up into one single affordable monthly payment. However, this option should always be carefully considered as, while the interest rate on your mortgage may be lower than on those other products, you could end up paying more in the long term. Additionally, all your finance would now be secured against your property, meaning should you default on any of it, your home may be at risk.
It can be a better option in some circumstance to manage your other finances and learn how to prioritise unsecured loans to pay them off one by one.
Whatever your reasons for doing so, remortgaging, like any major financial decision, is not something to be taken lightly. Make sure you fully research the market, understand the jargon, and access professional independent advice before signing up to anything.
Remortgaging can save you money and even allow you to clear your mortgage sooner than you expected, but it can equally lead you down a more unfavourable path, so make sure you are acting in your own best interests.
If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs.