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.
Which? Mortgage Advisers can help you switch to the best available deal.
Why should I consider remortgaging?
Your mortgage deal is almost over
Most of the best mortgage deals are available for a limited period. So, you might fix your interest rate for two or three years, or sign up to a rate that tracks the Bank of England’s base rate for two years.
However, when that period comes to an end, you will move onto your lender’s standard variable rate. This rate is set by your lender and can be increased at any time, irrespective of what is happening with the base rate.
It’s also usually far higher than the rate you were paying before, meaning your monthly repayments will increase.
However, you can remortgage to a new fixed or tracker rate, whether from your existing lender or a new one and, in the process, can secure a lower interest rate on your mortgage, saving you money.
You own more of your property
As you repay your mortgage, you will build up the level of 'equity' you own in the property.
For example, if you put down a 10% deposit when you bought the property, you owned 10% of it outright at that point - but over time, through a combination of paying off the mortgage debt and your property rising in value, you might now own 30% outright.
This is important when the time comes to remortgage, as you will be borrowing at a lower loan-to-value (LTV). When you bought, you will have used a 90% LTV mortgage, but now you would only need to borrow at 70% LTV.
Mortgage lenders tend to offer better rates as the LTV gets lower, as they view the loan as less risky. This can translate into a significant saving on your mortgage repayments.
You want a different deal
When you take out a mortgage, you're hoping that it's going to fit your needs for the period - say two or five years - that it lasts.
That might not always be the case, though - perhaps you could get a far cheaper deal elsewhere, or you want extra flexibility, like the ability to overpay or take payment holidays.
Remortgaging could well be an option for you - provided you do your sums right and the benefits of switching deal before it ends outweigh the costs. We've explained this in more detail below.
You want to borrow more
Remortgaging can be a useful way of releasing some of the cash you've built up in your property through equity, to fund home improvements or give money away.
Increasing your debt isn't something to be taken lightly. Find out all the pros and cons in our guide to remortgaging to release equity and cash from your home.
You want to beat a rate hike
The Bank of England base rate and your mortgage are often closely connected to each other, and if the Bank decides to increase rates, this could have an impact on your monthly repayments.
We put the emphasis on 'could' here - if you're on a fixed-rate, fixed-term deal, you won't see your rates or repayments rise, although you might find that deals are more expensive when you do need to actually remortgage.
Other types of mortgage, such as tracker mortgages, are closely tied to the base rate, meaning repayments are affected by rate rises. This is part of the trade-off on these deals, but if it's giving you cold feet, you may want to remortgage to a deal that gives you more certainty over your monthly repayments.
How much could I save by remortgaging?
There are a few scenarios where remortgaging can result in big savings, provided you act in good time and get the right deal. Here are a couple of examples of how much you could save.
Your fixed-rate deal has come to an end
In 2016, Mike took out a two-year fixed-rate mortgage on a property worth £443,000. Mike only had a small 5% deposit and borrowed £421,000.
He was offered a rate of 3.89% on a 95% loan-to-value mortgage, over a 32-year term. Mike's monthly repayments were £1,918.
In 2018, Mike's deal is coming up to an end. His property is now worth £450,000 and, with a few overpayments, he's got his mortgage balance down to £405,000.
He speaks with a mortgage broker, and finds that he can now get a 90% loan-to-value mortgage, as he has £45,000 in equity.
The best rate on offer has tumbled to 2.24%. Mike remortgages for £405,000 for a 30-year term.
Mike's new monthly repayments are £1,546. He's cut his monthly repayments down by £372, and has saved £4,464 a year.
You're on your lender's standard variable rate
Mary owes £200,000 on her mortgage. Her property is worth £250,000, and she has 25 years left on her mortgage.
She's been on her lender's standard variable rate for the past year, but six months ago, it increased from 3% to 3.99%. Her currently monthly mortgage repayments are £1,055.
Mary finds that the same lender is offering a two-year fixed-rate deal at 1.89%. This will reduce her monthly mortgage repayments to £837, and result in an annual saving of £2,616.
Your property has gone up in value
Megan bought a property for £300,000 in 2015, with a 10% deposit. She had £30,000 in equity.
At the time, she took out a three-year fixed-rate 90% mortgage for 25 years, which charged 3.39%. Her monthly repayments have been £1,355.
In 2018, Megan's property is now worth £350,000, and she's reduced her mortgage down from £270,000 to £245,000.
Megan's equity is now £105,000, equivalent to 30% of the property, so she qualifies for a 70% loan-to-value mortgage.
Her mortgage broker finds a two-year fixed-rate deal charging 1.6%. Megan remortgages for £248,000 over a 22-year term.
Megan's monthly repayments drop £1,101, a saving of £3,048
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.
To prepare for remortgaging you should take steps to get your finances in order. Find out more in our guide to improving your mortgage chances.
Should I remortgage with the same lender?
When you remortgage, you are taking out a new loan on your existing property. Unless you want to increase how much you're borrowing, this will be for the balance remaining on your mortgage.
If you're remortgaging with your existing lender, you'll be doing what's known as a 'product transfer', switching from one mortgage product to another.
Sticking with your existing lender may speed up the process, as you have an established relationship and they have your details on file. But you may be able to find a cheaper deal elsewhere with a different lender.
Either way, you'll be making an application for credit, so will need to provide evidence of income and outgoings to show that you can afford the new loan. Your circumstances may have changed since you first took out the mortgage, and your lender will want to see that you can still afford to repay your mortgage, even if the balance has reduced.
It's worth seeking professional, independent advice when remortgaging to find the right product for you - whether that be with your existing lender or a new one. Which? Mortgage Advisers can help guide you through your options. Call them today on 0800 197 8461.
Is a remortgage product different from a mortgage product?
A mortgage and a remortgage are essentially the same thing - a long-term loan secured against the value of a property.
However, lenders will have different product ranges for mortgage and remortgage customers.
While some products might be available to borrowers regardless of whether they are buying a new property or remortgaging, others will be limited to just purchases or just people who want to remortgage.
There are different types of remortgage products. You can find out more in our guide to types of mortgage, and visit Which? Money Compare to see the latest remortgage deals and compare them on both cost and quality of service.
Who values your property when remortgaging?
Before you remortgage, do your own research. Ask a couple of estate agents to value your property, and look up sale prices for similar properties on your street using property portals such as Zoopla and Rightmove. These sites use data from the Land Registry.
This will give you an idea of how much your property is worth, and roughly what type of remortgage deal you should apply for.
But for mortgage purposes, your lender will do a valuation of your property. This will either be done as a drive-by (where a surveyor literally drives down your street to look at your property) or using existing sales data to value your home from a computer.
This valuation and the amount of mortgage debt you have will be used to work out what kind of mortgage deal you qualify for.
Do I need a solicitor when remortgaging?
In short, yes. There will be some legal work required when you remortgage your property, and you'll need to use a conveyancer.
They will conduct ID checks, carry out further property searches if your lender requires them, and check any terms in your lease or mortgage that need to be flagged to you.
They'll also collect the funds from your new lender and repay your existing mortgage with them.
There should be much less work involved than if you were buying or selling a property and, therefore, costs should be much lower. Many lenders offer free legal advice for remortgaging, but that's not always the case, so it's worth checking.
Accepting the free legal advice will mean using the lender's preferred conveyancer. If you want to appoint your own, check to see if that's possible and whether your lender will cover the 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.
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.