What is a remortgage?
There are some things we’ve become used to shopping around for; energy providers, mobile phone deals, car insurance quotes – and so on – but mortgage deals don’t often appear on that list.
Really though, this is exactly what remortgaging is; changing from your current mortgage deal to one that better suits your finances.
When the paperwork is tied up and the new mortgage comes into force, you’ve ‘remortgaged’ your property.
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What Does it Mean to Remortgage?
A remortgage is a way of taking out a new mortgage on a property you already own.
There are lots of different reasons for remortgaging a property, and millions of people do it every year. Sometimes, it’s to get a better deal or a better interest rate with a new lender, or sometimes it’s to make home improvements or release some of money tied up a house.
Take a look at some of the most common questions people have when it comes to remortgaging:
Why do people remortgage?
Everyone’s finances are a little bit different – so there’s no single reason that people remortgage. That said, there are some popular reasons for remortgaging:
A better interest rate
Sometimes, a new mortgage deal will simply be at a lower interest rate than your present mortgage, so switching could reduce the overall amount you’ll pay; bringing your monthly mortgage payments down.
In some cases, a house will be worth more now than when you first bought it, so a remortgage could ‘free up’ some of the money that the house is now worth.
For example. Let’s imagine you bought the house for £150,000.
In the time between taking that first mortgage and now, your home’s value has increased to £200,000 – so a lender would be willing to offer a bigger mortgage than the one you first had.
Remortgaging like this could mean you take some of that new value as a cash, giving you some extra spending power elsewhere.
Changing your mortgage type
There are thousands of different mortgage products on the market – and each one has slightly different advantages and disadvantages.
What suited you when you bought your home might not suit you now. A remortgage can fix this.
For instance, you might want a mortgage where you can make additional ‘over payments’ to bring down the term of the mortgage.
Not all mortgage products will let you do this, so you may decide to switch to one that does.
You may also decide to switch from an ‘interest only’ mortgage to a ‘repayment’ mortgage – potentially putting you in a better situation when your mortgage comes to an end.
Paying off debts
When you borrow money against a property, the interest rate you’ll pay is usually much lower than you’d expect to pay on a credit card, a personal loan, or other ‘unsecured’ debt.
This means it can sometimes make sense to borrow more money on your mortgage to pay off these debts – saving yourself a lot of short-term interest.
However, you should make sure you do some careful calculations here – as you may not save money if you’re paying the amount off over a much longer period.
Making home improvements
Home improvements cost money – and since they’re likely to increase the value of your home, it often makes sense to cover the cost of those home improvements by freeing up some money with a remortgage deal.
How does remortgaging work?
A remortgage works in a very similar way to the initial mortgage you took on your house.
Step 1: Getting an Agreement in Principle
You’ll start with an ‘Agreement in Principle’ (AiP) from a potential mortgage lender.
This is the mortgage provider’s way of taking a quick look at the mortgage proposal and saying whether they think they’d be willing to lend the amount you need.
This part of the remortgage process doesn’t usually require a credit check.
Step 2: Understanding the fees involved
At this stage, you should make sure you consider all the fees involved.
Some mortgage products have early repayment fees or ‘exit fees’ that you’ll need to factor in – and there will be fees you’ll need to pay for the remortgage, including; application fees, valuation fees, and solicitor’s fees.
Step 3: Applying for the remortgage
Assuming you get the AiP and you’re happy with the fees, you can then apply for the remortgage deal.
This will involve a more in-depth look at your finances – so be ready with payslips, bank statements, and details of any other financial commitments you have.
Step 4: Completing the remortgage
After carrying out a credit check to make sure you meet their lending requirements, the mortgage provider will arrange a valuation of your home.
As long as the valuation is as-expected and all the remortgage conditions are met, your lender and solicitor (often called a conveyancer) will arrange a transfer of funds to pay off the previous mortgage and arrange putting the remortgage deal in place.
How long does a remortgage take?
Most lenders will tell you that it takes between 4-8 weeks to remortgage.
Of course, some remortgages will be more complicated than others; additional work for a solicitor or the lender can add days or weeks.
This usually only applies if you’re adding or removing someone from the mortgage though – or if the property valuation comes back with something unexpected.
It’s a good idea to start shopping around for a new deal around three months before you need one. If you do find a great remortgage deal earlier than expected, the mortgage lender may be able to reserve it for you.
Can I remortgage?
The answer is usually yes – but it will depend on your individual financial circumstances and your plans.
For instance; if you were employed with a good credit rating when you took out your previous mortgage, you might find it more difficult to remortgage at a good rate with a new lender if you’re now unemployed and your credit rating has gone down.
This is especially true if you haven’t been able to keep up repayments on your mortgage.
Whether or not you can remortgage will also sometimes depend on why you’re remortgaging. If you’re getting a better rate, paying off debts, or making home improvements, most lenders will have no problem offering a remortgage.
However, if you’re planning to use any money that’s freed up to start a business, providers might not be as willing to lend.
If your circumstances have changed or you’ve got an uncommon reason for wanting to remortgage, it can sometimes be useful to talk to a mortgage broker.
As well as being authorised and regulated by the Financial Conduct Authority (FCA), a good mortgage broker will be able to tell you which lender’s remortgage product is the most likely to suit your needs.
Do I need a solicitor to remortgage my home?
If you’re sticking with the same lender and simply transferring to a different mortgage product, you may not need a solicitor – and in fact, the lender might simply consider your request a ‘product transfer’ with minimal fees.
However, if you’re moving to a new lender, borrowing more, changing ownership, or having your home revalued, you will need a solicitor or conveyancer to help with the legal side of the remortgage.
Free legal packages
In many cases, the remortgage lender you’re dealing with will include a “free legal package” in the deal you’re applying for.
This means they will provide a solicitor for you. It’s worth checking that the service is actually free though; if it’s just an additional cost that’s hidden within the lender’s fees, you might want to shop around.
When will you need to appoint your own solicitor?
There are a couple of instances where you’ll actually need to appoint your own solicitor – even if the lender offers one for you.
If the property’s ownership is changing when you remortgage (i.e. you’re adding or removing someone as a joint-owner) then this becomes a ‘transfer of equity’.
In cases like this, a solicitor will need to amend the deeds and draw up an ownership agreement.
When can you remortgage your home?
In theory, you’re able to remortgage your property at any time. However, there are some good times to consider remortgaging – and some instances when remortgaging might not be such a good idea.
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When is remortgaging your home a good idea?
If your current mortgage deal is coming to an end
Often, the best mortgage rates only last for a few years. If your current mortgage is a ‘discount’, ‘fixed rate’, or ‘tracker’ product, then chances are the rate you’ve got will only last for a certain amount of time.
When that great rate ends, your lender will transfer you to their ‘standard variable rate’ – the most basic mortgage product they have.
Since this rate is likely to be much higher than your previous rate, you can expect your payments to go up. This is a good time to start looking to remortgage to get a better rate.
If the value of your home has increased a lot
The value of some properties can increase significantly – even in just a few years. If this is the case for you, it’s worth looking at remortgaging, as it could mean your ‘loan to value’ (LTV) band has gone down.
For example; if your house was worth £200,000 when you bought it and you took a £150,000 mortgage – you borrowed 75% of the value of your home.
If the house is now worth £300,000, then re-mortgaging for the same amount would only be 50% of the value of your home. The lower the LTV, the better rate you can expect.
When is remortgaging your home not such a good idea?
If your mortgage has large early repayment fees
Many mortgage products require you to pay large fees if you wrap the mortgage up earlier than planned – which is exactly what you’re doing when you remortgage.
If these fees are significant, it can actually often mean you’re worse off, even if you’re reducing your repayment.
Your lender should have a remortgages calculator that will help you decide if the combination of fees and new interest rates will work for you.
If you have very little equity in your home
If you’re hoping to remortgage more than 90% of the value of your home when you remortgage, you might struggle to find a good deal.
This could be because you already have a large mortgage – but it could also be because the value of your home has dropped since you took your first mortgage out.
If your personal or financial circumstances have recently changed
If you’ve had a life change that’s altered your financial circumstances, you might find that the interest rates you’re offered aren’t as attractive.
This could be that you’ve run into money problems elsewhere, you’ve become self-employed, or even had a change in your relationship status.
Does remortgaging your home affect your credit rating?
A mortgage or remortgage is a large financial commitment – so you can almost certainly expect to be credit checked when you go through the full mortgage/re-mortgage application process.
Some lenders will conduct what is known as a ‘hard search’ on your credit file. This is a detailed look at your credit report and score to decide the level of risk you pose.
The lower the risk, the better deal or interest rate you can expect to be offered.
You might end up with temporary credit score problems if you have a few different hard searches carried out in a short period of time.
This raises questions with a lender – effectively; “Why is this person applying for so many remortgage products?”
Lots of applications will make the lender think you’re desperate or too much of a risk for other remortgage companies to take you on – and they might decline you too.
Successfully getting a remortgage from your first application will not affect your credit rating. If you do find you’re declined, the hard search will only stay on your credit file for 12 months.