26th January 2024
(information contained within was correct at the time of publication but is subject to change)
In this article, we are going to explain what remortgaging is and why someone may choose to remortgage their home. You may know remortgaging as a way to save money on your mortgage, but it’s not always as simple as that. So before deciding to remortgage your home, reading this article could save you a lot of time and hassle.
This article will explore the process, allowing you to learn what steps there are to make on the path to a remortgage. Also, the reasons for and against remortgaging will be discussed, as well as tips for getting it right from our expert team of mortgage advisors.
How A Remortgage Works
Firstly, to decide if you should remortgage your home, you need to know what a remortgage is. Remortgaging is a fairly straightforward concept – it’s where you exchange your current mortgage for a new mortgage on a property that you already own.
Breaking it down to more familiar scenarios, remortgaging is similar to shopping around for a better deal on something you already pay for, such as car insurance or your Sky / mobile phone package. Plenty of people avoid becoming stuck in unfavourable deals by looking around to compare what they currently have with deals being offered by someone else, and remortgaging is essentially the same thing but with your mortgage.
Initially, a remortgage may sound perfect for you and your situation, whatever that may be. However, remortgaging is not something you want to wander into blindly. Any reliable and experienced mortgage broker will be able to tell you if remortgaging is right for you and what you want to achieve. If you’re not at the stage of seeking the advice of a mortgage advisor, then allow this article to be your introduction to remortgaging.
A Mortgage Product Transfer is an Alternative Option to Remortgaging
If your current deal is coming to the end of its benefit period, instead of remortgaging, you could potentially do a product transfer. As opposed to remortgaging – when you switch from your current deal to a new deal with a different lender – a product transfer includes changing your current deal but staying with your existing lender.
For example, if you are on a standard variable rate mortgage with 8% interest with Halifax, with a product transfer, you could switch to a new deal with Halifax, such as a tracker mortgage at 6% interest. Different product, same provider. This makes a product transfer a possible alternative to remortgaging.
The Process: The Best Way to Remortgage Your Home
Even though you have already gone through the mortgage application process, the process of remortgaging your house is a slightly different sequence of steps. This is why it may be advisable to consult a mortgage broker as part of your remortgage process.
1 - Current lender’s expiry date
If you are on an introductory mortgage deal, such as a five-year fixed-rate or a two-year tracker mortgage, traditionally, at the end of your deal, you will be moved onto your lender's standard variable rate (SVR). And this is what you will stay on until the end of your term unless you remortgage or engage in a product transfer, as mentioned above. Meaning if you want to remortgage and move onto a better deal, you need to get started with the next steps in plenty of time - this could be as early as 7 months before your benefit end date, however you can remortgage at any time, subject to additional fees.
2 - Start searching for better deals
When you choose to remortgage your home, the reason is usually that your lender’s standard variable rate (SVR) isn’t the best deal for you because of the high interest rates in comparison to alternative fixed/tracker options and instability of a standard variable rate (SVR) mortgage. So now is the time to search for the best deals you could potentially remortgage onto. At this stage, you can identify the most suitable mortgage that works for you and your current circumstances.
3 - Obtain your outstanding balance from your existing lender
When you ask your lender for a closing balance, you will be sent the amount needed from you to pay off the remainder of your mortgage. Should you decide to remortgage, this is the amount you would need to borrow. Be aware to look out for any early repayment fees that may make remortgaging a futile endeavour.
4 - What type of mortgage do you want?
With the different types of mortgages available, you need to decide which one is most suitable for you at this time. To do this, consider your current circumstances and if you have any upcoming changes in your life (family, work, house move, etc). For expert help, turn to a mortgage advisor who can help you identify the best type of mortgage for you based on your current circumstances.
5 - Affordability checks
Affordability checks are a part of the remortgage process. This is how to determine whether or not you will be able to afford the mortgage deal you are looking to switch to. You may be required to provide things such as bank statements, payslips, credit card statements, proof of identification, and more.
6 - Credit score and creditworthiness
Your credit score and creditworthiness play a vital role in getting accepted for a mortgage. And the same is true for remortgaging, so it’s time to check your credit score. If necessary, you should be making efforts to improve your creditworthiness a year in advance. By keeping your credit file clear before remortgaging, you are bettering your chances for a successful remortgage.
7 - Hire a mortgage broker
If you haven’t done so already by this point, you should start looking at finding a mortgage broker to work with. Even though a mortgage broker is not essential to remortgage your home, they do provide plenty of value. A good mortgage advisor will be able to match you up to the best deals that suit your unique situation. Remortgaging can be like walking through a thick fog, but with the help of a mortgage broker, you can begin to see the way forward more clearly, getting you closer to remortgaging your home.
8 - Agreement in principle (AIP) from new lender
An agreement in principle is not a mortgage offer, but more of an initial indication, if you like, of how much you can borrow and a confirmation that you have passed an initial credit check with said lender. Although this is not binding, it provides a good indication of what a lender may be prepared to lend you. Having this figure is handy as it sets you on the right path to understanding what a remortgage could look like for you.
9 - Mortgage application
You will have been down this road before with your first mortgage. The mortgage application process for remortgaging is fairly straightforward. The same applies to this mortgage application as it does to standard mortgage applications – the more financially reliable you present yourself, the more likely it is that you will be accepted. As part of the remortgage process, you will require a solicitor – it is quite common for lenders to cover the majority of this cost via cashback or by instructing solicitors directly themselves. However, this is untrue for a product transfer as the mortgage debt and title is already with that lender, making the process is simpler.
10. Confirmation of house worth
Your new lender will want a valuation of your property to confirm it is suitable security for the new mortgage. A lender will often cover the cost of this service as an incentive to switch to them.
11. Receive mortgage offer and pay off old mortgage
If you have been successful in your mortgage application, you will be approved. You, your mortgage advisor, and solicitor will receive a letter containing the mortgage offer, and once you have ensured everything is correct and signed your mortgage deed, and after completing your solicitor’s paperwork, your solicitor will be able to draw the funds from your lender and pay off your old mortgage.
Reasons to Remortgage Your Home
So why remortgage your house? There are multiple reasons people choose to remortgage their property. You could consider remortgaging if:
You’re not happy with your current mortgage terms – Over time, our situations and needs change. What once was an ideal mortgage, may not be anymore. This could be down to an increase in income, meaning you want to pay more off your mortgage but are not allowed to, or perhaps you want a mortgage with payment holidays. Remortgaging for more flexibility and ease could be a solution.
The deal you’re currently on is coming to an end – Most of the desirable mortgage deals are only available for a short amount of time, such as two, three or five years. When your current deal ends, you will be automatically placed onto your lender’s standard variable rate (SVR). These rates typically come with interest rates that are less competitive, meaning a remortgage could be the solution to reducing your payments.
You want a better rate on your mortgage – Remortgaging onto a better rate is a common strategy for homeowners. But be warned, if you are currently committed to an initial deal, there may be an early repayment charge (ERC) and possibly an exit fee should you choose to switch. You must judge if these fees are worth it to remortgage to a better rate. A mortgage advisor can help with this decision.
Avoid rising interest rates – If you are on a tracker mortgage or an SVR or discounted rate, then as the Bank of England rate rises, so could your mortgage. This means that remortgaging onto a lower interest rate could save you money each month.
Your home’s value has gone up – If your home is now worth more, you may now be in a new, lower loan-to-value (LTV) band. In this case, you will become eligible for lower interest rates. Much like early repayment charges and exit fees, it’s worth doing some calculations to see if it is worth remortgaging.
To borrow more – If you want to borrow more money from your lender and they refuse, you could remortgage to find a lender who is willing to loan you some extra funds. For complete transparency, your new lender will ask what the extra money is for before handing it over. Most commonly, this could be for a new car, paying off existing debts or home improvements.
There are a handful of other reasons that make remortgaging your home a viable option. The range of reasons to remortgage your home just goes to show that everyone’s own situation is unique. While it may make sense for one person to remortgage, that may not be the case for others.
Reasons Not to Remortgage Your Home
Now that we have explored the reasons for a remortgage, what are the reasons not to remortgage. Reasons against remortgaging include:
The early repayment charge is too high – As we mentioned earlier if you want to leave your current mortgage deal to remortgage onto a better rate, you need to be wary of any early repayment charges. ERCs can be anywhere from 1%-5% of what you still owe on your current mortgage deal. A high ERC could simply be too much to justify a remortgage.
Remortgage with bad credit – Lenders consider who they lend to very carefully and if you want to remortgage with bad credit, this just may not be possible. The Financial Conduct Authority requires lenders to ensure issued mortgages are affordable, even if interest rates rise. Because of this, your creditworthiness will be assessed, allowing a lender to identify if you qualify for a remortgage. Bad credit could be enough to make a remortgage not possible.
Other reasons not to remortgage include not having enough equity in your home, if the value of your home has dropped, and if you’re already on the best rate you’re going to get. If you are in the process of moving house at the time your remortgage is due, be sure to speak to a broker about products without early repayment charges.
Choose a Reliable Mortgage Broker if You Need Help
While having a mortgage broker by your side as you venture into remortgaging isn’t a necessity, it can be the best way to remortgage your house.
Sure, you may have handled your current mortgage on your own, but as we have discussed, remortgaging is a slightly different beast. A mortgage advisor can be the ace up your sleeve, streamlining the entire process by finding the best deals that may not be available on the high street or online. Also, they can offer advice on what type of deal best suits your current circumstances.
Arguably the biggest advantage of a mortgage broker for a remortgage is the personal approach. A great mortgage broker gets to know you and by doing that, they get to understand what you really want out of a remortgage – what your situation is and the goals you hold.
It’s this personal approach that can get you on the correct remortgage path, directing you to more financial freedom on a deal that works for you. At Norcutt Mortgages, we’ve helped so many homeowners during this, sometimes, challenging period. Could we help you to remortgage your home? Speak to our team to find out.
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