What is remortgaging?
Remortgaging is when you change your mortgage without moving home. You do this by paying off the original mortgage with the proceeds of the new one, using the same property as security.
Why should I remortgage?
There are several reasons why people remortgage. The most common are:
- Your mortgage deal has come to an end and you have been placed on your lender’s standard variable rate (SVR)
- Your existing deal is nearing its end and you will soon be placed on your lender’s SVR
- You want to reduce your monthly repayments
- You need to borrow more money, maybe for home improvements or to pay off other debts
- You want to change to a different type of mortgage
When’s the best time to remortgage?
You can remortgage at any time but it’s best to choose a time when there's a definite advantage in moving mortgages.
This may be when:
- You've come to the end of a fixed rate mortgage deal
- Interest rates are lower than the rate you're paying at the moment
- The value of your home has significantly increased
- The benefits outweigh the costs
What are early repayment charges?
With some mortgages, if you pay off the borrowing earlier than agreed, you may have to pay an early repayment charge (ERC). The exact amount depends on the type of mortgage you have and your lender.
ERCs tend to apply to fixed rate mortgages more often than variable rate mortgages. They may apply for the entire length of the fixed rate but in some cases the ERCs decrease over the term of your mortgage.
Early repayment charges can run into several thousand pounds and it’s important to understand how much you’ll need to pay before you commit to a new mortgage deal.
What does loan-to-value (LTV) mean?
Your loan-to-value (LTV) is the percentage of your home that is mortgaged. For example, if you owe £80,000 on your mortgage and your home is worth £100,000, your LTV will be 80%.
Your LTV will change if house prices go up or down. For example, if the value of your home rises from £100,000 to £110,000, a £80,000 mortgage will equate to a LTV of about 73%. Your LTV will also change as you make payments on your mortgage and if you make overpayments.
LTVs are important when you remortgage as the lower the LTV, the better remortgage deal you can get.
Will I have to pay a fee to remortgage?
When you take out a new mortgage deal you may have to pay a number of fees. These include:
- Booking or arrangement fee
- Valuation fee
- Legal fees
- Mortgage exit fee
How much these will be will vary from lender to lender and between different products, but it’s important to factor them in when comparing deals.
Mortgage fees can often be higher for mortgages with a lower interest rate and you may find it works out cheaper overall to choose a mortgage with a higher interest rate but a lower fee.
Which type of mortgage should I choose?
There are two main types of mortgage:
- Fixed rate
- Variable rate
A fixed rate mortgage has a set rate of interest for a stated period of time, enabling you to guarantee your mortgage payments. Your payments won’t change, regardless of what happens to interest rates elsewhere, such as the Bank of England base rate.
This makes it easier to budget, because you know each month how much your biggest household expense will be.
If you have a variable rate mortgage, the interest rate can change at any time. This can make it more difficult to budget with certainty for your mortgage payments.
Variable rate mortgages themselves come in various forms such as:
- Standard variable rate: each lender has an SVR it can move when it likes – although it tends to roughly follow the Bank of England’s base rate movements.
- Discounted: this type of mortgage offers a discount off the lender’s SVR. So if the SVR was 4% and the discount offered was 1%, you’d pay a discounted rate of 3%.
- Tracker: this is a variable rate mortgage that follows the Bank of England base rate, so when the base rate rises or decreases, so does your mortgage rate. It usually tracks at a percentage above the base rate.
What’s the difference between repayment and interest-only?
Most people have a “repayment” mortgage where the monthly repayment is made up of an interest payment plus a payment towards the outstanding debt. At the end of the mortgage term, the borrower will own the property outright.
The alternative is an “interest-only” mortgage. The borrower just pays the mortgage interest each month, not any of the capital debt. At the end of the mortgage term, the initial debt will still be outstanding, so you’ll need to have some way to repay it.
How long should my mortgage term be?
The term is the number of years over which you will repay your mortgage. Traditionally most people took out mortgages on a 25-year term, but it can be anything from five to 40 years.
The longer the mortgage term, the lower your mortgage repayments will be – but the more interest you’ll pay overall.
If you can, it’s best to reduce the term each time you remortgage. So if you took out a five-year fixed rate mortgage over 25 years and remortgaged after five years, it’s a good idea to reduce your mortgage term to 20 years rather than reset it to 25.
What do I do if I am moving home?
If you’re already a homeowner but are moving to a new home, you can often take your existing mortgage with you. This is called “porting” your mortgage, and can be more cost-effective than taking out a new mortgage.
Some mortgage deals permit porting, while others don’t, so check with your lender. Porting your mortgage will still involve undergoing an affordability assessment, a credit check and a property valuation.
Be aware too that if you’re moving to a more expensive property and need to borrow more, you may not be able to, or if you can, you may end up with two mortgages as some lenders will require the additional borrowing to be put on a separate mortgage.
What’s a product transfer?
A product transfer is when you move from one mortgage product to another, for the same amount of money, with the same lender. A product transfer will be quicker and easier than a remortgage.
Should I use a broker?
It can be a good idea to use a fee-free mortgage broker when remortgaging. There are thousands of mortgage products from hundreds of lenders on the market and a broker can help find the best one for your circumstances.
A broker will also be able to tell you whether a product transfer with your existing lender, or remortgaging to a new lender, will be better for you.
If you’re moving house a broker can advise you whether porting your current mortgage or taking out a new one is the best option.
Read more about remortgaging in our guide.