What is Remortgaging?
Remortgaging is a process where a homeowner switches their current mortgage deal to a new one, either with the same or a different lender. This process can be useful for homeowners to reduce their monthly payments, access additional funds, or to switch to a repayment mortgage from an interest-only mortgage. It allows homeowners to take advantage of better interest rates and gain more flexibility with their mortgage terms.
Why do People Remortgage?
There are many reasons why homeowners choose to remortgage their property:
1. Taking advantage of low interest rates
One of the most common reasons for remortgaging is to take advantage of lower interest rates. Homeowners may find that their current mortgage deal is no longer competitive, and they could save money by switching to a new mortgage deal with lower interest rates.
2. Renewing their current fixed deal
When a fixed-rate mortgage deal comes to an end, homeowners may choose to remortgage and lock in a new fixed rate to avoid paying the lender’s standard variable rate (SVR).
3. Switching from interest-only to repayment
Homeowners who have an interest-only mortgage may choose to remortgage to switch to a repayment mortgage. This can help them pay off their mortgage balance over time, as interest-only mortgages only require borrowers to pay the interest on the loan.
4. Obtaining a better rate than they’re currently on
Homeowners may be able to obtain a better rate on their mortgage by remortgaging to a new deal, which could help reduce their monthly payments and save them money in the long run.
5. Making overpayments
Homeowners who have additional funds may choose to remortgage and use the extra money to make overpayments on their mortgage. This can help reduce the overall term of the mortgage and save them money on interest payments.
6. Borrowing more money
Homeowners may choose to remortgage and borrow more money to make home improvements or fund other projects.
Things to Consider Before Remortgaging
Before considering remortgaging, there are a few things to consider:
1. Potential savings vs. fees
Homeowners need to weigh up the potential savings they could make by switching to a new mortgage against any fees or early repayment charges that could outweigh the benefits.
2. Fees involved
Homeowners should check if their new lender is offering a fee-free mortgage, or if there is a product fee involved, as this could also counteract the savings they might have made by remortgaging.
3. Loan-to-value (LTV) ratio
The LTV is the ratio of the outstanding mortgage balance to the property’s current value. The lower the LTV, the more mortgage deals that may be available to the homeowner.
4. Mortgage readiness
Homeowners should ensure that they are “mortgage ready” before remortgaging. Even if they have a mortgage already, the same checks will be carried out when they apply for another one. Homeowners should make sure their credit score is healthy as the lender will still perform the same affordability checks.
Common questions about remortgaging
Remortgaging is the process of switching your existing mortgage to a new one with a different lender, either to save money on monthly repayments or to release equity in your property.
You should consider remortgaging when your current deal is about to end, when interest rates have fallen, or when your financial circumstances have changed.
Remortgaging can help you save money on your monthly repayments, shorten your mortgage term, release equity in your property, or switch to a more flexible mortgage deal.
Remortgaging can involve various costs, such as arrangement fees, valuation fees, legal fees, and early repayment charges. It’s important to factor in these costs when deciding whether to remortgage.
To remortgage, you’ll need to find a new lender and apply for a new mortgage deal. You’ll also need to have your property valued and undergo credit and affordability checks. A solicitor may also be needed to handle the legal aspects of the remortgage.
Not everyone will be eligible to remortgage, as it depends on factors such as your credit score, income, and equity in your property. It’s important to shop around and compare different mortgage deals to find the best option for your individual circumstances.
