What is remortgaging?
Remortgaging is the process of getting a new mortgage on a property you already own. There are a number of reasons you might consider doing this, but it’s a huge opportunity to save thousands of pounds a year on your mortgage repayments.
Remortgaging usually happens when you’ve come to the end of your mortgage deal, but there can be other good reasons to switch.
If you’ve paid off more of your mortgage, your property has increased in value or you’re worried about a rate rise, remortgaging can be a great way of saving money and giving you peace of mind.
Reasons for remortgaging
The most common reason for remortgaging is to save money. Your mortgage is likely to be your single most significant expense, and you could potentially save hundreds of pounds a month by changing your mortgage deal.
Saving money isn’t the only reason for remortgaging, however. Here are some other reasons below:
- Your current deal is coming to an end – you might be moved to a more costly standard variable rate (SVR) repayment plan. More on this below
- You want to switch from an interest-only mortgage to a repayment option – if you’ve only been paying the interest on your mortgage but now want to start paying off the loan
- The value of your home has increased
- You want to borrow more – by releasing equity in your home
- Economic uncertainty – if you’re worried about the economy and interest rates, you might want to move to a fixed-rate mortgage for more security
- You want to pay off your mortgage earlier – your current mortgage might not let you pay it off early without incurring penalties
- A more flexible mortgage – if your circumstances have changed, switching deals or moving provider could offer benefits like mortgage holidays and greater flexibility
Saving money remains the most significant reason people remortgage. While several of the factors above can save money, the primary motivator is to reduce your monthly mortgage payment, which could be your largest outgoing. This can be achieved more quickly than you might think.
For example, if your current deal is about to end, the fixed interest rates that brought you to that lender might also be about to expire. Soon, you’ll be moved onto a standard variable rate mortgage. Remortgaging would allow you to avoid this and potentially secure an even better fixed-rate elsewhere.
Research shows that 27% of homeowners are on an SVR and paying an average of £4,000 more than they need to each year.
When should I start thinking about remortgaging?
It’s a good idea to make a note of when your initial fixed or tracker rate will be coming to an end, and a second note six months beforehand to give you a chance to look around at the market and see what sort of rates are available.
Your mortgage lender will generally write to you a few months before you move onto the standard variable rate to warn you that your rate could increase and invite you to consider remortgaging.
The process typically takes between four and eight weeks – so the earlier you start planning, the quicker you can make savings.
Remortgaging: how much does it cost?
Exit fees
If you switch deals during the initial fixed or tracker period, then you will likely have to pay an early repayment charge (ERC). The ERC is calculated as a percentage of the outstanding debt and can be quite significant.
For example, if you’re on a five-year fixed rate deal and remortgage in the first year, it’s not uncommon for the ERC to be 5% of the mortgage, which may mean thousands of pounds.
In addition, many lenders charge an exit fee to cover the administration of closing your account. This is much smaller, typically around £50 to £100.
It’s important to check your mortgage documents to establish precisely what costs will be involved with remortgaging. Your annual mortgage statement should also set out what ERC would be payable.
Arrangement fees
There may be further costs to account for with the new mortgage, too. Many mortgages come with a product or arrangement fee, which is often around £1,000.
This can be added to the mortgage balance, though remember that doing so means you will pay interest on it, so it will cost you far more in the long run.
Legal fees
There will also usually be legal fees to cover things like valuing the property and conveyancing.
These fees will be much lower than for someone who is moving to a new property as there is less legal work involved.
Bad credit remortgages
Most high street lenders will be very cautious when it comes to bad credit remortgages. Adverse credit doesn’t have to prevent you from remortgaging and this is where our specialist brokers have a great deal of experience in finding remortgages. Any bad credit remains on your credit file for six years. If you had issues longer ago than that, it shouldn’t affect your application.