Your Complete Guide To Remortgaging

Posted 3 April 2018 by Nick Parkhouse

Want to save money by switching your mortgage? Here’s your essential guide to remortgaging...

If you want the very best mortgage deal, it can often pay to switch to a new lender. We reported research in 2017 that suggested that UK homeowners could save a whopping £10 billion in mortgage interest by switching to another lender – a process known as ‘remortgaging’.

Lenders have also started offering loyalty deals to existing borrowers to encourage them to stay put. So, either way, a remortgage could be the way to save hundreds of pounds a year in mortgage interest.

Our guide tells you everything you need to know about remortgaging.

Is a remortgage the right answer for you?

While remortgaging can often help you to save money, a remortgage isn’t suitable for everyone. For example, you may have penalties with your existing lender if you end your mortgage with them. You may only have a short period to run on your current home loan. Or, you may be planning to move home or sell your property in the short term.

Before you start the remortgage process, ask yourself these five questions.

If it’s been a few years since you took out your current mortgage, one of the issues you will face is that underwriting criteria is likely to have changed. Tougher mortgage rules introduced in 2014 mean that banks and building societies have to carry out more affordability checks than before. It may now be harder to get the mortgage you need, even if your income is the same.

You may also find it harder to switch lenders if your income, outgoings or credit rating have changed since you took out your mortgage. And, if you’re self-employed, then this time around you will have to prove your income as ‘self-certification’ deals are no longer available. Read our guide to getting a mortgage if you’re self-employed.

The valuation of your home is critical

One of the major factors that will determine whether you are able to switch lender is the value of your property.

If your property has fallen in value since you took out your mortgage, then you may find it harder to get a new home loan with another lender. With less equity you may struggle to find a competitive deal.

If the value of your home has risen since you took out your original mortgage, then this may help you to get a better deal. Generally speaking, you’ll get a lower interest rate if there is more equity in your property.

If you are struggling with the valuation of your home, read our guide to mortgage down valuation.

How does a remortgage work?

When you remortgage, you repay your existing mortgage to your current lender and you take out a brand-new mortgage.

Your new mortgage will be enough to repay your existing mortgage in full. If you have equity in your property then you may also wish to borrow additional funds as part of your remortgage, maybe to carry out home improvements or to buy a second home.

Most people remortgage to take advantage of a lower interest rate. If you’re sitting on your lender’s Standard Variable Rate (SVR) then the chances are that there will be better fixed-rate or tracker-rate deals available elsewhere. Remortgaging lets you take advantage of these deals.

What about staying with my own lender?

In recent years, lenders have increasingly started offering ‘loyalty’ deals to borrowers thinking of remortgaging elsewhere.

One advantage of this is that your existing lender might not require the same stringent affordability or income checks that a new lender would insist upon. So, if your earnings have fallen, your outgoings have increased, or you have recently become self-employed, staying with your current lender may be a better choice.

Another advantage of sticking with your current lender is that it may be less hassle. Even the most straightforward remortgage will involve you completing some application forms and some legal paperwork. You may also have to attend a mortgage interview with a bank or with a broker. This time may well be worth it if you save a significant sum on your repayments.

However, getting a better deal with your current lender may mean nothing more than a telephone call. You need to weigh up whether the effort in remortgaging is worth it to you.

Bear in mind that staying with your lender may still mean that you have to pay for a valuation of your home, or that you pay an arrangement fee for a new product. In addition, your lender may not have the most competitive deal. It may still be worthwhile to switch to a new bank or building society.

Where to get your remortgage

Most lenders offer remortgage choices. You can consider approaching:

  • A high street bank or building society
  • A specialist lender such as a regional building society
  • An independent mortgage broker or advisor

A broker can search the market to find the most appropriate remortgage deal for you. Find out what a mortgage broker can do for you.

Balance the costs of a remortgage against the savings you will make

If you decide to remortgage, there is a strong likelihood that you will incur some charges. At the very least, the new lender will want a valuation of your property and there will be some legal costs incurred as part of the remortgage process. Some lenders will meet these fees as an incentive to switch, although you may pay a higher interest rate for these benefits.

You may also have to pay an arrangement or booking fee for the specific product you choose. Most fixed- or variable-rate deals have an associated fee and while this can often be added to the mortgage you should take it into account when choosing the right deal for you.

Read our guide to mortgage fees and costs

In the past we have reported that you should be careful when remortgaging because of the costs involved. However, even if there are charges involved, you may find that you save a significant sum by remortgaging onto a lower rate.

This is particularly true if you have a larger mortgage. An independent mortgage broker will normally crunch the numbers and work out which option is better for you.

 

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