Remortgaging is essentially a switch to a different mortgage on the house you own. You might choose to switch to a different lender or sign a new agreement with your current lender.
Your biggest financial commitment is your mortgage. Remortgaging is just as important as the original mortgage. There are many options available and you will be tied down for several years. We will now discuss what remortgaging is and what you should consider.
Remortgaging is a smart decision for many reasons.
The end of your current mortgage term is near. This is the point when your current mortgage term will end.
To make it easier to pay for major expenses, you might increase your borrowing. You may be planning to move and need more borrowing. You might be looking for a loan to finance a home renovation project, school fees, Buy to Let, or consolidate debts.
To lower your monthly payments. To make your monthly mortgage payments more affordable, you might look for a lower rate deal. To switch to a better rate and a lower interest rate, you don’t need to borrow more. Although there may be fees associated with exiting your current agreement, it might still be financially worthwhile.
You don’t want to pay more. Your circumstances might have changed. You want to switch to a mortgage provider who allows you to overpay your mortgage.
The Bank of England base rates have changed. This might encourage you to look for a better rate if you have a variable-rate mortgage.
Your property’s value has increased. A lower loan-to-value (LTV), might allow you to qualify for a less expensive mortgage.
To fix your monthly payments. To fix your mortgage payments.
To ensure that you get the best deal possible and not overpay, it is important to check every few years.
You should set a reminder three months in advance of the end of your fixed deal. This will allow you ample time to shop around for a better deal and complete your remortgage application in time.
Switching to a new mortgage is a good option if you have repaid a substantial amount of your mortgage in the past and built equity in your home. This will reduce your monthly interest payments as you are able to take advantage the best deals.
UK Finance’s Mortgage Lending Trends report that in May 2019, there were 21,370 new mortgage remortgages with additional lending (where the homeowner borrows more money than their original mortgage). This was almost 20% more than the previous month.
You may be subject to penalties if you make a switch before the current mortgage agreement expires. However, it is worth doing your calculations as switching may be less expensive than paying the penalties.
Now that you understand why and when you should refinance, let’s take a look at how to do it:
Take out all paperwork. Keep track of the terms and conditions of your mortgage agreement. Which type of mortgage do you have? What is the current interest rates? What are your remaining payments? How much do you pay each month?
Talk to a mortgage broker for a free consultation or look online. Remortgaging can save you money if you speak to a mortgage advisor. The whole of market broker does not have to be associated with a specific lender. They can compare many deals. They will also include penalties and fees in their calculations.
Talk to your lender. Your current lender should be able to match the deal that the broker finds for you, just in case it is not widely known.
Submit your mortgage application. L&C’s mortgage service means that you don’t have to give the broker any additional information. You can easily apply online by telling them what you already know. Online tracking is also available.
A conveyancing solicitor is recommended. Remortgaging with your current lender is considered a “product transaction” and does not require additional legal work. A remortgage requires you to hire a lawyer or conveyancer to assist with the legal aspects. Refer to our guide: Do I need a conveyancing lawyer when remortgaging?
From application to mortgage offer, it takes between 18 and 40 days. There are no set time frames.
You will be required to pay an early repayment fee if you have a fixed-rate or discounted mortgage arrangement. These charges are typically calculated as a percentage of the outstanding mortgage balance. They are usually 3-5% in cost but can be lowered each year by 5%, 4% or 3%.
Exit fees: Many lenders will charge you an exit fee to close your mortgage account. You may call it something else. It could be called a mortgage account fee by Halifax, for example. They are typically between PS50 and PS300.
Lenders may charge fees for arrangement fees. These fees are part of the cost to ‘arrange’ the mortgage. They can be referred to as product fees, admin fees, or application fees. New lender arrangement fees are usually around PS1000, but they can go up to PS1500.
Legal fees: Most legal fees associated with remortgages will be covered by the lender. Any additional charges will have to be paid upfront. The cost of legal fees for remortgage can start at PS300 Check out our guide: Do I need a conveyancing lawyer when I remortgage my home?
Valuation fees are based on the property’s value. Lenders will charge a different fee scale. They are usually between PS200 and PS300. A lender may offer a free valuation in many cases.
The arrangement fees can be paid at the time you remortgage, or added to your loan. This is the most common option, however interest will be charged on top of the fees. They will also increase in cost over the term of your mortgage.
It doesn’t matter if you have a fixed mortgage or a variable one, it is a smart idea to shop around before your deal expires. If you find a better deal, you can move to another one.
There are options if you are not locked into a particular mortgage deal. Talk to your lender about remortgaging current loans over a longer term. This will make your monthly payments cheaper, but the mortgage will still be more costly over its life.
You may be able extend your mortgage with your current lender to get a larger loan.
People who want to purchase a second or buy to let home can raise money by remortgaging their home.
Remortgaging allows you to release equity from your home in order to raise cash to pay a deposit or buy a property. L&C offers a free service to help you determine the affordability of a remortgage or subsequent buy-to-let mortgage.
It is important to remember that buying a property to rent is not only affordable but also a significant financial investment. Before you remortgage to buy to let, read our guide on Investing in Property.
Negative equity is unlikely to get you a remortgage offer.
Your chances of getting a mortgage can be affected if you have a poor credit rating. Learn how to improve credit ratings here
Self-employed people may not be able to refinance if they don’t have sufficient income proof. Lenders will refuse to allow self-certification. For more information, see our guide to self-employed mortgages
Although many banks will lend to retirees, they may have an upper limit. Most will ask for the loan to be repaid by your 70th or 75th birthday. If you are 55 years old or older, the mortgage would need to be repaid in 20 years instead of the usual 25 years. See mortgages for over-50s for more information.
Lenders will often ask for higher salaries than loans in the past and consider your income as well as outgoings when offering you a mortgage.
Talk to your lender about remortgaging. You should shop around to find the best rate, so you aren’t getting a better deal anywhere else.
A fee-free broker can help you cut through the clutter and give you the expert advice and legwork that you need. They can compare the offers of other lenders with your existing lender to find out what they have.
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