Chances are, your mortgage is the greatest financial commitment you’ve ever made – and it’s probably your biggest monthly outgoing. So, this is one area of your household finances that you definitely don’t want to be paying over-the-odds for. Here, we explain all you need to know about remortgaging, and how to get the best possible deal.
When should you start the remortgaging process?
Lenders usually allow you to lock in your next mortgage up to six months before you want it to start, so you can begin the remortgaging process any time from then. It probably won’t make sense to switch from your current deal before it ends as you’ll be hit with early repayment charges (ERC) – more on these below.
What remortgage deals are available?
The mortgage market is changing fast. But here is a dynamic table of the kinds of remortgage deals that are on the market right now (just make sure you select the remortgage option in the top box). You’ll also need to enter your criteria, such whether you want a fixed or variable rate and over how long, as well as the mortgage term to calculate monthly payments.
How do you look for a new mortgage deal?
Some general research into what remortgage offers are available is a great starting point. But you may also want to approach your existing lender to see what it can do. In a bid to keep your business, it may offer you a ‘product transfer’ which switches your mortgage to a new deal.
The advantage of opting for a product transfer is that it usually means avoiding fees. You probably won’t need to undergo a fresh affordability assessment either, which could be especially handy if your income or circumstances have changed.
However, make sure you compare what you are offered against the open mortgage market and that you are getting the right type of deal for your circumstances.
It’s often easiest to speak to an independent mortgage broker. Many don’t charge a fee to the customer and may have access to exclusive deals that you won’t find elsewhere.
What happens when you remortgage?
Once you’ve found the right mortgage deal for you, you can apply either through the broker or directly with the lender.
At this stage, the new lender will start the ball rolling, and carry out all the necessary checks. It will assess your financial situation through its own ‘affordability assessment’. This looks at your outgoings and earnings to see if you can afford to pay the mortgage amount you’ve applied for.
The lender will also ‘stress test’ your finances to ensure you can still afford repayments should interest rates rise in the future. This involves applying a higher interest rate to its calculations. What this is will depend on the market at the time.
Your credit report will also be checked to see how you’ve managed any debts in the past.
If the lender’s happy to proceed, it will need to ensure your property provides enough financial security for the amount you want to borrow – which means completing an online (‘desktop’) or physical valuation of the property.
However, valuations are often free-of-charge when you’re remortgaging.
You will then receive a mortgage offer to sign that’s typically valid for around three to six months. This is followed by legal work to handle the transfer of your mortgage.
Finally, your new mortgage account will be opened on the date your current mortgage deal ends – ensuring you are well clear of any period during which early repayment charges apply.
What happens if you don’t remortgage?
When your current mortgage deal comes to an end – if you take no action – you’ll be automatically dropped onto your lender’s Standard Variable Rate (SVR).
SVRs are considerably more expensive than new mortgage deals, which means your monthly mortgage repayments can rise pretty steeply.
Moreover, your lender’s SVR is variable. This means it can change at any time, depending on what’s happening in the wider economy and with interest rates. This could make it tricky to budget.
Can you borrow more at the same time as remortgaging?
You might want to borrow more when you remortgage by releasing some of the equity you have built up in your home over the last few years. This cash could be used, for example, to pay for home improvements, or reduce other more expensive debts.
Say, for example, your home’s value has increased from £300,000 to £350,000. If you owed £240,000 to your lender, but get a new mortgage for £280,000, you would be left with £40,000 cash surplus (minus any fees).
By borrowing more, you will pay interest on a greater amount. However, if you owe in credit card or personal loans debt, mortgage rates are very likely to be cheaper.
What else can I get from remortgaging?
As well as cheaper interest rates or the chance to borrow more, remortgaging can also provide access to a more flexible mortgage deal. This could help you to repay your debt faster and save money in interest.
Here’s what to look for.
Make unlimited overpayments: Most mortgage deals – even fixed rates – allow you to overpay by around 10% of your mortgage balance each year, without penalty.
But there are deals with no ERCs at all which means you can pay off as much as you like with no charge. If you are in the fortunate position to be able to do this, it can shave years off your mortgage term and save thousands of pounds in interest.
Take an offset mortgage: If you have a lump sum in savings, this can be deducted from your mortgage balance to cut the cost of your repayments. For example, if you have £50,000 in savings, and a mortgage of £150,000, you’ll only pay interest on the £100,000 difference, while your savings remain intact.
What are remortgaging charges like?
Aside from the interest rate, look carefully at all costs when you’re remortgaging.
Early repayment charges: The biggest stinger is ERCs, which are levied when you leave (or ‘redeem’) your existing mortgage deal early. ERCs are typically charged at between 1% and 5% of your remaining mortgage balance. For example, you’d pay £10,000 to leave a deal early with a 5% ERC if there was £200,000 left on your mortgage balance.
Many deals carry ‘tiered’ ERCs which means it’s cheaper to leave with every year of the mortgage deal.
Exit fees: Many mortgages charge an administration or ‘exit’ fee just for closing your mortgage account. It’s typically between £50 and £200.
Arrangement fee: These fees are usually pegged at around £1,000 but can be higher. Generally, the lower the mortgage rate, the higher the fee. Whether a high fee is worth paying to access a cheaper rate depends on the size of your mortgage. A good broker will help you do the necessary sums.
Valuation and legal fees: Due to staunch competition for business, many lenders offer remortgage deals with a free valuation and legal service. Some offer cashback to cover these costs (amounting to around £300 or more). However, it’s always worth checking.
What will happen to mortgage rates?
Interest rates are climbing which is impacting the cost of mortgages and, amid growing economic uncertainty, availability of deals is also diminishing. Things change fast, but you can keep abreast of what’s happening with our mortgage update page.
But of course, no-one really knows for certain what lies ahead for interest rates – or the wider economy. And, as ever, whether you want to remortgage really comes down to your personal circumstances, and if it’s the right choice for you at the time.
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