How does remortgaging work?
You will probably already be familiar with the term ‘remortgaging’ and most people know what that means. Ultimately, there are several occasions in your lifetime where you might look at a remortgage or actually do it.
Remortgaging is not something that most people will fully understand and generally there are several years between when you do it, so things change. Firstly, you’ll need to make sure that a remortgage is possible and secondly that it’s the right thing to do.
There are many different things to think about when remortgaging and here’s a quick guide to help you.
A remortgage can save you thousands if you do it right and you get the right deal, but there are some potential problems that we’ll explain. You can also use a remortgage to raise money for things like home improvements or debt consolidation.
What does remortgage mean?
A remortgage is very simple and all it means is that you are replacing your existing mortgage deal with a new mortgage deal.
There are many different ways to do this and loads of options that are available for you to help you to either save money, or raise additional funds. The main thing to remember here is that you are not moving home or buying a new property, so a remortgage is purely for your existing property.
You can also perform a remortgage with your existing lender, called a product transfer or product switch, or you might move to a new lender. You have the option to do either of these when you remortgage and it’s up to you to decide which is best.
The two most common reasons for remortgaging are:
- Save money on your existing mortgage deal
- Borrow more money for another purpose
How does remortgaging work?
There are literally hundreds of mortgage deals from lots of different mortgage lenders in the UK which gives you loads of choice. This can also be confusing when remortgaging, because finding the right deal can seem difficult.
Getting a remortgage is actually quite simple, following Ten easy steps:
- Set a reminder to review your deal at the end of your fixed or discount deal (your lender will usually write to you)
- Review your existing mortgage deal and lender (ideally several months before your special deal ends)
- Check for any options with your existing lender (easier if you’re not changing mortgage term or amount)
- Compare deals online (if you’re comfortable doing this)
- Speak to a mortgage specialist (compare mortgage deals from various lenders)
- Choose which option is best for you
- Submit mortgage application
- Get a mortgage valuation (if required)
- Review your mortgage offer
- Complete your remortgage
When should I remortgage my home?
There are several points or financial events that might prompt you to have a look at your existing mortgage deal.
As we’ve explained above, the two main purposes of a remortgage are to either raise money or save money. If you think about the reasons why you might want to do this, then that would give you an idea of when it should happen.
Points when you should remortgage your home:
- Fixed or Discount rate ends: when your ‘special rate’ (e.g. discount rate or fixed rate mortgage) comes to an end then your mortgage will normally revert to the lenders Standard Variable Rate (SVR), which is typically higher. This is by far the most common and popular point for people wanting to remortgage their homes.
- Get a better mortgage rate: in some situaitons there might be a financial benefit to paying off your mortgage early (within Early Repayment Charge period) to secure a better mortgage deal.
- Increased property value: if your property has significantly increased in value by a considerable amount then it might be worth reviewing your mortgage deal. A remortgage with a lower loan t value can reduce your mortgage rate or you might have the option of raising additional funds.
- Home improvement loans: remortgaging is the most common way for people to raise money to pay for home improvements to help increase the value of your property.
- Change your mortgage from interest-only to repayment: some older mortgage loans might still be an interest-only style, which is now no longer used as much as it was in the past. You might want to remortgage to change from an older interest-only mortgage to a repayment mortgage.
If you’re thinking of remortgaging your property, it could be worth reading some of our 2023 remortgage predictions in our ‘MPO Guide to remortgaging in 2023’.
How long does a remortgage take?
On average, a remortgage will take anything from several minutes to several weeks depending on how, why and when you remortgage.
There are several things that will have a significant bearing on how long your remortgage will take. Here are just a few examples of different types of remortgages and how long they take on average.
- Product transfer or switch deal (existing lender) 1 DAY
- Remortgage with your existing lender (change mortgage term or amount) 1 to 2 WEEKS
- Remortgage with another lender 2 to 4 WEEKS
What are the top reasons for remortgaging?
People will usually remotgage for two main purposes which are to either save money or to raise money.
These two things then break down in to a number of specific reasons or purposes that you can think about. Lenders will often ask you to give them some context around the actual reason for your remortgage, unless you’re just trying to save money.
Top reasons for remortgaging:
- Get a better rate or deal
- Home improvements
- Debt consolidation
- Deposits to buy another property (e.g. Buy to let)
- Pay off a lump sum (e.g. inheritance, investments etc.)
- Switch to a repayment mortgage
- Change in circumstances (e.g. divorce, separation etc.)
- Fix your mortgage deal
Advantages of remortgaging
There are several pros and cons of remortgaging your home.
Some of the main advantages of remortgaging your home include:
Save money – the main advantage that people look for when remortgaging is to make sure that they save money on their monthly repayments. You can usually do this by remortgaging at the end of your fixed or discount rate period.
Protect against interest rate rises – this is especially important in times of economic uncertainty such as we are in now, where you might want financial security. If mortgage rates and interest rates are increasing then you can protect yourself against this with a fixed rate.
Consolidate debts – you can help to manage your finances and organise your outgoings by consolidating your debts in to one manageable payment. You should consider that you will be charged interest over a longer period so the cost of your debts will often be higher.
Disadvantages of remortgaging
Some of the main disadvantages of remortgaging your home include:
Fees and charges – there are a number of potential fees and costs that you would need to carefully consider before you remortgage your home. Some of the most common fees include:
- Mortgage broker fees (usually £300 to £1,000)
- Early repayment charges (an exit fee of between 2% and 5% of your mortgage)
- Lender arrangement fees (usually up to £1,000)
- Admin fees (£50 to £100)
- Valuation fees
- Legal fees
Often fees and charges will vary dramatically between lenders and mortgage brokers, so it’s worth shopping around.
Declined or refused mortgages – if your remortgage application is refused or declined then you might find that this can have an effect on any future applications. You should carefully check as much as possible to make sure that this should not happen, but you won’t always be able to check for certain.
Credit history or credit score – if your credit score has dropped because of credit problems then you will usually find that your remortgage rates will be higher. Mortgage rates are dependent on your credit score so those with a lower score will generally pay higher rates.
Can you remortgage early?
The simple answer is yes you can remortgage early and in fact, you can remortgage whenever you want to. There are a few things that you need to think about before remortgaging early though.
The first question that people ask with this is, what does remortgage early actually mean? This is a great question and there are two answers, which are:
- Remortgage within your special rate period (e.g. fixed or discount rates)
- Remortgage before the end of your mortgage term
Generally, remortgaging early refers to the first option which is to remortgage in a special rate period. This is usually when you would be tied in to your mortgage with what is known as an Early Repayment Charge.
How to remortgage
There are a number if different ways to remortgage your home or property and there are literally thousands of remortgage deals on offer.
Finding the best remortgage deal can be confusing and time-consuming, so it might be worth getting expert advice from a qualified mortgage specialist. You never can be 100% certain that you’ve got the very best remortgage deal, but getting proper advice can definitely help.
Some of the top options for remortgaging your home are:
- Speak to a qualified mortgage specialist
- Ask your existing mortgage lender
- Get a mortgage quote online
Each of these options will suit different people in different ways, so you just need to consider which option is best for you.