Switching your mortgage can help you to reduce your mortgage payments and the amount of interest that you pay. It can also allow you to release capital from your home to fund home improvements or to consolidate other debts.
If you have a mortgage, the chances are that you’ll want to remortgage at some point. Thousands of Brits switch their mortgage every month to benefit from a better deal or to release equity. But why should you remortgage? And how does it work?
What is a remortgage? Why should I consider one?
A remortgage involves you switching your mortgage to a new deal, either with your current lender or, more commonly, to a new lender. You don’t move home, and the mortgage is still secured against the same property.
There are five main reasons you might want to remortgage:
1. Your current interest rate deal is coming to an end
At this time your mortgage will typically revert to your lender’s Standard Variable Rate (SVR) and this often results in an increase in your monthly repayments. Which? research found that the average homeowner on their lender’s SVR was paying up to £4,000 more than they needed to by not remortgaging.
2. You want to release equity from your home
If you have equity in your property, you may want to release this to pay for home improvements, to gift to a family member, or to consolidate other debts.
3. The value of your property has increased, and you want to take advantage of a better deal
Typically, the lower your ‘loan-to-value’, the better the deals that you can take advantage of. So, if your loan-to-value has reduced since you took out your mortgage, you may now be able to access a lower interest rate.
4. You want to find a more appropriate product for your circumstances
Your personal situation can change over time, and your current mortgage deal may no longer be suitable for your needs. A remortgage allows you to choose a more appropriate product/mortgage.
5. You want to protect yourself against potential interest rate rises
Perhaps you’re on a tracker or discount rate and you feel that interest rates are set to rise? When you remortgage you can choose a fixed-rate product which gives you the peace of mind that you’ll know exactly what your mortgage repayments will be for a defined period.
Your five remortgage steps
So, you’ve decided to consider a remortgage. Here are the five steps you’ll take.
1. Check your current deal
First, you need to establish what interest rate you’re currently paying. This is important, as if you are part way through a fixed or tracker rate deal your lender may levy early repayment charges if you decided to switch your mortgage elsewhere.
Early repayment charges can run into thousands of pounds and will often mean that it won’t be financially beneficial to remortgage. So, find out what your current deal is, what rate you are paying, and whether any early repayment charges apply.
2. Establish the value of your home
As part of the remortgage process, the lender will want to value your home. This is so they can ensure your home provides adequate security for the loan.
The deals that are available are often determined by the ‘loan-to-value’ and so you’ll need to have a good idea of the value of your home to establish which deals you’re eligible for. Head online to look at the sale prices of comparable homes or ask a local estate agent to give you a valuation.
3. Check your credit score
If you’re remortgaging to a new lender they will want to check your credit score. So, it’s worth heading online to one of the three main credit reference agencies in the UK (Experian, Equifax and TransUnion) to check your credit report.
You can obtain a copy of your credit report free of charge, and this will show you if there are any issues such as missed/late payments or defaults that may affect your chances of being accepted for the mortgage you want.
4. Speak to an adviser about your options
An independent mortgage adviser can scour the market for you to find the most appropriate remortgage product. They will work out which deal is best for you, taking into account the interest rate and any associated fees. They will typically also look at the deals being offered by your current lender to establish whether taking one may be more cost-effective.
If your circumstances are in any way unusual – perhaps you are self-employed, or you earn bonuses or commission – they can also use their market knowledge to find a lender who is likely to accept your application.
5. Complete your remortgage application
Once you’ve found the right lender and mortgage deal for you, it’s time to start the remortgage process. It can take around 6-8 weeks to complete, so if your current mortgage deal is coming to an end it can pay to start the remortgage process early so you’re not sitting on your lender’s Standard Variable Rate for several months.
The process will include a valuation of your home, and there is some legal work as a conveyancer must arrange for your existing mortgage to be repaid and the new one to begin. Often, the valuation and legal costs of a remortgage will be paid for by your new lender.
Once the process is complete, your existing mortgage will be repaid, and you’ll start making repayments based on the new interest rate and mortgage.
If you’re looking for advice on finding a better mortgage deal, saving money, or releasing equity, we can help. We’re remortgage experts and can help you find the right lender and product for you. Email firstname.lastname@example.org or call (0207) 808 4120 to find out more.