A remortgage is when you take out a new mortgage against a property that you already own. This could be so that you can borrow money against your property, or it could be to replace your current mortgage.
While remortgages may work in the same way as getting a mortgage in the first place, there is a slightly different process involved in applying for one.
This guide will help you to understand remortgages and what to do if you are planning on remortgaging your home.
Why should I remortgage?
There are several different reasons why people look to remortgage their properties, these might include:
- To take advantage of a lower interest rate – There are two options for swapping to a different rate of interest, you could either take out a new mortgage with your current lender, or you could switch to a completely new mortgage provider.
- Because your current fixed deal is up for renewal – If your current fixed deal is up for renewal, now might be a good time to remortgage your home and move to an alternative deal.
- Because you want to borrow more money for home improvements – Many people opt to remortgage their properties because they want to release the equity that they have built up in their homes. Many lenders will limit the loan-to-value that they’ll offer depending on what the money is to be used for.
- Because you want to move from an interest-only mortgage to a repayment mortgage – If you are on an interest-only mortgage, then you may get a more favourable deal on a repayment mortgage.
- Because you want to be able to make overpayments – If your current mortgage doesn’t allow you to make overpayments, you may wish to remortgage your home.
- Because you want to release capital – this could be for a number of reasons including raising a deposit to purchase a buy to let property.
How to boost your chances of getting the best remortgaging deal
Ahead of remortgaging your property, there are several things that you could do to improve your chances of getting a lower interest rate on your loan.
Although you may have been approved for a mortgage in the past, and you may have an existing mortgage, it is not a given that you will get a more favourable rate now, your finances need to be in order.
Firstly, you should check your credit score. Once you have done this, you should make sure that you fix any mistakes. For example, if you are not on the electoral register, this can affect your credit score, so you will need to make sure you are registered. You should close down any unused bank accounts or credit cards, then you should work to lower your debt to income ratio.
Pay off some of your credit card, especially if you are at or close to your limit. Having a loan or a credit card where payments have been made promptly will not affect your credit score and may even increase it unless you are heavily indebted.
Your level of debt may affect how much you can remortgage for, so be sure to speak to your Mortgage Broker about your outgoings and levels of credit/debt.
You can check your Credit file here
What remortgage should you choose?
The options for the remortgages that will be open to you will depend on how much equity you have stored up in your property at the moment as well as your credit score.
The type of remortgage that you choose depends on several factors. For example, the rates that you are offered by the lender and the amount that you will need to pay in fees.
What fees will there be?
There will be several different fees associated with remortgaging your home. It is important that you understand what these fees may be and that you find out how much it will cost you to remortgage your property before you go ahead and take out a new loan. The costs that you should take into consideration may include:
- Arrangement fees – This could be a fixed amount of a percentage of the total sum that you are borrowing.
- Legal fees – These are usually free on a standard remortgage but if your case is complex it is worth checking this in advance. E.g. if you are adding or removing a party to the mortgage or anything that increases the lenders workload this could be subject to additional fees.
- Booking fees – In addition to paying arrangement fees, you may also need to pay a fixed booking fee. This could be between £100 and £200
- Valuation fees – When you take out a mortgage the lender will want to have their own valuation of the property carried out. Some deals offer free valuations. If not then you may wish to consider if you wish to pay a non-refundable fee in case something goes wrong. E.g. You bought the house in good condition but neglected the upkeep and maintenance.
- Exit fees – Also known as a completion fee, this is an administration charge made by the existing lender for allowing you to pay off your mortgage.
- Early repayment charge – these are typically between 1-5% of the remaining balance of your mortgage.
Adding fees to a mortgage will increase your level of indebtedness and you are likely to repay more than the actual fee itself because it will be incurring interest.
How do I get the best remortgage deal?
It is best to shop around for the best mortgage deal. There are several online tools that you can use that will help you to find the right deal. You could find that this involves a mortgage where you are paying the lenders standard variable rate (SVR) or is a fixed-rate mortgage.
How can a Mortgage Broker help?
A better way of finding the right mortgage might be to meet with a Mortgage Broker who is authorised and regulated by the Financial Conduct Authority. A broker can take a look at your current mortgage and compare a range of financial products to advise you on which will be the best for you. They will also be able to help you to calculate all of the costs associated with the loan.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.