How does Remortgaging work?
Whether you want to release equity, or just want to know how Remortgaging works so you can tackle this confidently. Our complete guide to Remortgaging your House will guide you through the process. Or, if you would like a professional Mortgage Advisor to take over, get in touch below:
What is a Remortgage?
A Remortgage is simply the process of moving your Mortgage from one lender to another.
The main reason you would look to do this is because your current deal or fixed rate is coming to an end with your existing lender. Or it already has, and you are on the lenders expensive Standard Variable Rate.
If you have been with your lender for a long time or if you notice your Monthly Repayment changes slightly every now and then. The likelihood is, you are on the Lenders Variable Rate.
The problem with being on the Lenders Standard Variable rate is; it is usually more expensive than other options.
When should I Remortgage?
At the end of every deal, you should always look to change to a new one. Whether that’s Remortgaging to a new lender or moving to a new deal with your current lender (Product Transfer).
You should always consider two options when looking to change your current Mortgage:
1. What deal or fixed rate can your Existing Lender offer you
2. What is the cheapest deal available with a different lender
Reasons to Remortgage to a New Lender
1. Cheaper: It’s not always the case, but often the cheapest Remortgage deal out there is usually cheaper than what your existing lender will offer you. It’s just like Insurance on your Car, loyalty isn’t always rewarded. The likelihood is your current lender, will be offering new customers a cheaper deal than their offering you.
2. Flexibility: you need to change Mortgage term and/or move to a different type of Mortgage i.e. from a Discounted deal to a Fixed Deal but your existing lender won’t let you.
3. Raise funds: You need to raise additional funds from your property and your existing lender either won’t let you or it’s simply cheaper to move.
Reasons to stay with your existing lender
and transfer to a new Product with them
Costs: It could be cheaper to do so – there may be costs involved with Remortgaging, that outweigh the benefits of moving. Or your existing lender could offer you a cheaper deal
Circumstances: Your circumstances might have changed since taking out your existing Mortgage. I.e. recent missed payment or going from Employed to Self-employed.
Time: It’s usually quicker to complete a Product transfer with your current lender than it is to complete a Remortgage
Can I Remortgage if my Mortgage is worth more than my home?
Remortgaging and raising additional funds:
Moving to a new lender and raising additional funds is known as a Remortgage with Capital Raise.
Releasing equity from your property in this way can be a cheap and cost-effective way to raise much needed funds. In addition, you are usually able to raise much more over a longer period, than what you would from say an unsecured loan.
How much equity can I release from my property?
This comes down to a few things. How much your existing Mortgage is for and how much your property is worth also known as Loan to Value (example: Mortgage of £100,000 and property value of £200,000 = 50% Loan to Value).
And, what your income and outgoings are and what you will be using the additional capital raise for i.e. debt consolidation.
Remortgage & Capital Raise
In general, you can raise funds that take you up to 85% loan to value with most lenders for most purposes. However, some lenders will permit you to go up to 95% loan to value depending on what you will be using the additional funds for.
What can I use the funds for?
In general, funds can be raised for almost any legal purpose. However, these are the most common reasons:
- Debt consolidation – permitted up to 85% loan to value with most lenders. Some will allow up to 90%
- Home Improvements – permitted up to 90% loan to value with most lenders. Some will allow up to 95%
- To put toward a Buy to Let purchase – permitted up to 85% loan to value with most lenders. Some will allow up to 90-95%
- For business purposes and to pay a tax bill – only around half a dozen lenders will allow this
Cons of raising additional funds on your Mortgage
- Much like your existing Mortgage, securing additional funds against your home puts you at risk of having your property repossessed if you do not keep up with repayments
- Increases the length of time it takes you to repay your Mortgage if you have to increase the term to make repayments on your new Mortgage balance more affordable
- The higher the loan to value, the higher the interest rate will be on your Mortgage
When to Remortgage?
As above, you should Remortgage or complete a Product transfer with your existing lender, whenever you are coming to the end of your current deal. And if you’ve already come to the end of your deal and moved onto your lenders Standard Variable Rate. You should look to Remortgage or change deals as soon as possible.
You can begin the Remortgage process 3-6 months before the end of your fixed deal. This is because Mortgage Offers are valid for this length of time. The best reasons to Remortgage early is because it could take you 2-4 weeks to obtain your Mortgage Offer.
Your Mortgage Offer will then be passed over to a Solicitor (usually paid for by the lender), who could then take a further 2-4 weeks to complete things their end. If they’re ready for you to complete earlier than it’s expected, it’s not a problem.
They will simply set your completion date to 1-2 months time when your current fixed deal ends. You can then sit back and relax, rest assured that your Mortgage is sorted for another 2-5 years.
Another reason to Remortgage early, could be because you feel interest rates are going to creep up over the next 3 -6 months. If this is the case, you may want to secure a new deal on your Mortgage now.
Raising additional funds without Remortgaging
The following alternatives to Remortgaging should always be considered when you are looking to raise additional funds:
- Further Advance with existing lender
- Second Charge Mortgage
- Unsecured Loan
Our Mortgage Brokers will always consider the above alternatives before making their recommendations to you.
Financial Incentives and Costs of Remortgaging:
- Free Solicitor – most lenders will provide you with a free Solicitor which will complete the legal transfer from your existing lender to your new lender
- Free Valuation – most Remortgage products will come with a free property valuation
- Cashback – some products will come with cashback usually around £250-£500, payable to you as an extra financial incentive to get you to Remortgage to the new lender
Possible legal costs
All standard costs of Remortgaging will be included in the free Solicitor package listed above. However, if you require any additional services, an extra fee may be incurred. For example, where you wish to complete a transfer of equity (adding or removing someone from your Mortgage).
Early Repayment Charges
If your current deal is coming to an end whilst you are Remortgaging, make sure you set your completion date to be on or after the fixed end date of your current Mortgage to avoid any repayment charges.
Mortgage Broker fees
Your Mortgage Advisor may need to charge a fee. If this is the case, they should make this clear from the outset.
Simply have a question or need to get moving. Next steps?
Speak to one of our qualified, regulated and highly rated Mortgage Advisors. Simply complete our short Mortgage Enquiry form and we will get one Mortgage Advisor that is local to you and which specialises in your case, to give you a call. They can answer any other questions you have, provide you with a free non-obligatory quote and/or talk you through the process in greater detail.
If you’re self-employed or have had credit problems in the past, don’t worry, we can help. As a specialist in these areas, we have access to all Specialist Mortgage Lenders.
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