What Is Remortgaging?
Remortgaging is the process of paying off what you currently have left on your property’s existing mortgage with a new mortgage deal. Usually you’re looking to get a better deal and more preferential rates – perhaps your fixed rate term is about to come to an end, for example. The benefits of remortgaging are obvious: reduced monthly payments, securing yourself a better interest rate and possibly even shortening the time it will take to pay back. It can also be a good option if you want to borrow more to afford home improvements or pay off other more costly debts, such as credit card loans.
So, while there are many reasons why you may need to remortgage your property at some point in your life, there are common mistakes made that are easily avoidable and some common ‘best practice’ tips that will always apply.
These are our top do’s and don’ts on how to remortgage your property.
DO give yourself time to research the market.
Our best advice is to start discussing options with your mortgage adviser at least six months in advance of when you plan to remortgage your property.
Timing is key, and it pays to line up and apply for your new deal no less than three months in advance. In a mortgage climate where rates are rising, this ensures securing a competitive rate and also safeguards you against rolling onto a more expensive standard variable rate at the end of your mortgage term.
DON’T stick with your current lender just because it’s easier.
The major benefit of remortgaging your property is that you may be able to save money by reducing the rate of interest and your monthly payments. The mortgage world is competitive, and the simple fact is that your current lender may not be the cheapest.
Unlike simply swapping to a different mortgage rate with the same lender, remortgaging opens up options with new lenders. If for example you have a higher income compared to when your mortgage was initially arranged five years ago, you may find that you are able to increase your borrowing power. You may choose to release capital for a number of different reasons, while securing yourself a more competitive rate than what your current lender offered.
However, if your earnings have gone down since first taking out your mortgage, it may be the case that you’re unable to secure the lending needed to remortgage with a new lender. The best option may therefore be to switch to a new deal with the same lender.
DO shop around for the best options.
The best option may not be the one that gives you the lowest monthly payments, but the one that allows you to pay back your mortgage quicker, making a larger saving over time.
While your current lender may offer a reasonable retention product, such as a more favourable rate if you stay with them, you’ll tend to find the best deals are available when you switch lenders.
If you need additional borrowing, a second charge – meaning a second mortgage on the same property – may be more appropriate than remortgaging, so it’s worth considering all the options and consulting our expert advisors before making a decision.
DON’T try and guess your property’s value.
While it can be tempting to guess how much the value of your home has changed since you bought it, you’ll need an accurate valuation to know how much you can spend or save with your new mortgage.
If your property has increased in value since you first took out your mortgage, when you choose to remortgage, the loan-to-value figure is likely to decrease. This then means you are less risky to a mortgage lender and your interest rates may drop, depending on the current interest rate climate.
A correct valuation is also important if you want to release any equity. But by doing this, you need to be aware that you will be taking out a larger loan and paying more interest over time – we’ll make sure you’re properly advised at every step along the way.
DO get your paperwork prepared in advance.
The process of remortgaging is almost exactly the same as getting a new mortgage. This means that there can be a lot of paperwork, so the quicker you can get all your documents together, the quicker the whole process will be. You will need ID, proof of address, proof of income and bank statements, while also undergoing the same affordability tests that are required when applying for a new mortgage.
An additional ‘Top Tip’ from our mortgage team here is this one:- It’s worth keeping all your documentation in a safe and easily accessible place, so when the time comes to start filling out forms/making new applications, everything is already stored and ready to use.
DON’T forget there are associated fees.
One of the main things to take into account when remortgaging your property are the fees, and it’s important to check and be sure that these costs make overall financial sense.
Some lenders will make you pay a charge for terminating your contract early if you’re still within your fixed-term period, which will usually be a percentage of what time is left on your fixed contract. In addition to this, there may be an exit fee to cover admin costs. Make sure your mortgage advisor has given you a full list of all fees, and calculated exactly how they’ll affect you.
Your new lender could also charge set-up fees, which are the same as when taking out a new mortgage. Also, legal work is still required when remortgaging your property, which typically takes 2-3 weeks.
All of these things can and will increase the overall cost of your mortgage, so be sure you’re looking out for them and discussing them in full with your advisor.
To talk to us specifically about remortgages, get in touch via our ‘contact’ form and we’ll take it from there.