Remortgaging is a term used for changing mortgage deals. A remortgage takes place when you change your current mortgage, either by switching mortgage products with your current lender or by changing your lender completely.
Remortgaging has both advantages and disadvantages and may not be suitable for everyone. So let’s have a detailed look at how to get the most from your remortgage.
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Reasons to remortgage
You want to clear some debt
You may have equity in your property that you want to use for debt consolidation. This can be perfect for when you're paying high-interest rates on your outstanding debt. Furthermore, it's likely your remortgage will have much better rates.
To buy another property
A remortgage can allow you to buy another property. For instance, you may want to buy a second home or an investment property. This is perhaps the smartest way to use a remortgage and use the equity in your home.
Home improvements
A remortgage can be ideal if you wish to carry out some home improvements. Furthermore, you may also increase the value of your property in doing so. Use capital tied up in your home to spend on your home, clever.
Get a better mortgage rate
Many of us remortgage to get a better rate. Why pay more, when you can pay less? A remortgage to a better rate may mean changing lenders but doing so can also provide you with security. This is especially true if you switch to a fixed-rate mortgage.
Your current deal is about to expire
If your mortgage is due to expire, you'll be placed on your lender's standard variable rate, which is often high. Switching your mortgage can help you to keep your mortgage payments low.
Switching your mortgage type
You may simply want to switch your mortgage type and may need to remortgage in order to do so. This can be ideal for situations where you need to switch from an interest-only to a repayment mortgage for instance.
You have an unencumbered home
If your home is mortgage-free, then you should be able to release a huge chunk of equity with a remortgage. The correct term for this would be an unencumbered mortgage.
Mortgage overpayments
You may want to make overpayments on your mortgage but your lender won't allow you to do so. By remortgaging you can reduce the size of the mortgage and get a better rate.
Buy to let remortgage
As a landlord, staying on top of your mortgage rate can be crucial in making sure your investment is profitable. Buy to let remortgages are also assessed in a different way to residential remortgages.
When you shouldn’t remortgage
A remortgage may not be suitable in the following situations:
- Large early repayment charge
- You have a small amount of mortgage left
- No equity in your property
- If you’re in financial difficulty
- Your mortgage rate is unbeatable
Can I remortgage early?
Check with your lender before making any plans to remortgage, as most will have exit fees for leaving a mortgage early. If you have a huge early repayment charge, then it might not suit you to remortgage.
Some lenders will allow you to switch to a different product which can reduce your early repayment charge for the privilege. Consider all your options and really crunch those numbers before remortgaging. This is why it’s vital to do your homework before choosing a particular mortgage in the first place.
Read more: Should I remortgage early?
My mortgage balance is small
If the majority of your mortgage has already been paid off and it falls below a certain amount, then it may not be worth remortgaging. For instance, if your existing mortgage is around £50,000 then lenders tend to charge higher fees.
If your outstanding balance is around £25,000, most lenders will deem it too small for a mortgage. There are other alternatives, such as a lifetime mortgage, which may be more suitable if you’re approaching retirement.
Can I remortgage if I don’t have much equity?
If the value of your property has fallen, you may have little or no equity. If you need a mortgage of 90% or more, it will be difficult to find a better mortgage rate. That being said, it doesn’t mean it’s impossible.
Speak to your current lender or an advisor to see if there are any rates that could save you money. If the value has dropped enough to leave you in negative equity, then it will be very difficult and near enough impossible to remortgage in order to save you money.
Negative equity is where your debt is higher than the value of the property. As a result, your only option is to continue to pay your mortgage until house prices start to improve.
Should I remortgage if I’ve run into financial difficulty?
If you’ve run into some financial difficulty, it may have had a negative impact on your credit file. When you remortgage, your new lender will usually carry out another credit check and check your financial position
It can be difficult to remortgage with bad credit, however, we may be able to secure you a remortgage as we work with lenders who specialise in this field.
I don’t need to remortgage, I’m already on a great deal
It may not be worth remortgaging as your current deal is already one of the best. As mortgage products and rates are always changing, it’s always worth knowing what products are available in case you want to switch.
Remortgaging isn’t simply about rates. For instance, you may have purchased your home using the Help to Buy Scheme or you may have a refurbishment mortgage and need to withdraw some capital. As a result, each remortgage would entail a completely different outlook.
A Help to Buy remortgage and a refurbishment remortgage are completely different to start with, so would entail entirely different mortgages.
What type of remortgage deal should I choose?
Capped mortgages are not fixed but follow variable rates. However, the rate can be capped if it exceeds a certain limit. This is useful for knowing that your mortgage will never exceed a certain amount, providing you with additional security.
Do bear in mind that capped rate mortgages are often at higher rates than fixed-rate mortgages.
Discounted mortgages generally offer a discounted percentage from the lender's standard variable rate. As the rate is variable, again your payments could either go up or down without having a capped limit.
This means mortgages could initially appear attractive and they could well remain that way. There is a risk that the rates could increase to a level you're not prepared for.
Offset mortgages operate by offsetting your savings against what you owe on your mortgage. This then reduces the overall amount of interest that you need to pay.
For instance, if you have a £100,000 mortgage and £50,000 in savings, an offset mortgage would allow you to only pay interest on the £50,000 difference. The advantage of this is that it enables you to pay off the mortgage a lot quicker. To be eligible for an offset mortgage, your savings would also need to be kept with the same lender that's offering you the mortgage.
Offset mortgages do generally have higher rates than other types of mortgages, so you will have to look carefully at whether or not this is the right type of mortgage for you.
Learn more: What is an offset mortgage?
How can I get the best remortgage deal?
Don't focus on the best rates
Sure, a 2% rate initially appears better than a 2.25% rate but this doesn't mean that it's a better deal. The rate is simply the percentage of how much interest you're being charged. Fees can make a mortgage more expensive.
Arrangement fees
Some lenders may charge an arrangement fee, which they'll require you to pay either upfront or they'll add the cost of the fee to your mortgage. This can impact the overall cost of your mortgage, so do check the overall cost.
Remortgage fees
Lenders may also charge you for a mortgage survey along with other admin fees such as telegraphic transfer fees, which are usually quite nominal but worth knowing before you commit to a product.
Fee-free remortgages
If you see a remortgage deal that includes a free valuation, free legal services and no product fees, still do your homework. Don't rush into a deal before calculating the overall cost of the mortgage.
The power of equity
Equity is your strongest asset. The more equity you have, the better the mortgage products you'll have to choose from. If you have little or no equity, it probably isn't wise to remortgage.
Choose the right mortgage term
Your mortgage depends on your budget. Longer terms aren't as attractive as many would like to be mortgage-free later in life. If you'd prefer to save more money each month, then a longer-term may appear more attractive.
How to remortgage
Check your current deal and if you’ll be liable to pay any fees or early repayment charges. Once you’re satisfied that you still want to remortgage, speak to an independent mortgage advisor, so they’re able to find you the best deal going.
Speak to a mortgage broker
Heading straight to your current lender or bank and taking the first mortgage deal offered isn’t always the smartest move. As obvious as it sounds, that’s exactly what a lot of people do.
Shopping around for a deal that suits you is something that you should consider, as mortgages are a long-term financial commitment and spending that extra time could save you thousands over the years. Finding a great mortgage deal can be time-consuming and tricky, as it’s not just about the best rates as explained.
An experienced mortgage advisor could do all of this for you and may be able to offer you exclusive deals that can’t be found on the high street. Great mortgage advisors will cherry-pick the best deal out of thousands of mortgage products and handle the switch from start to finish. They’ll do all the number crunching for you, ensuring you really are getting the best deal possible.
Remortgage FAQ
Yes, it's possible to remortgage with bad credit. That said, your approval will depend on your credit issues and the lender you've applied with. It's recommended to speak with an advisor who can check your application in further detail.
Read more: How to remortgage with bad credit
