Frequently asked questions about remortgaging
When buying a new home, most of us take out a mortgage that allows us to borrow enough money to make the purchase.
While it might take years before we pay off our mortgage debt, it doesn’t mean we have to be stuck with the same mortgage throughout.
This is where remortgaging comes in – it can save you spending more than you need in interest payments, as our guide explains.
What is remortgaging?
Remortgaging is the process of replacing your existing mortgage with a new one, using the same property as security, without moving homes.
Why should I remortgage?
There are several reasons why homeowners consider remortgaging:
The initial mortgage rate has ended, and you're switched to a lender's standard variable rate (SVR), which is often higher
Your existing deal is about to end, leading to an SVR
A desire to reduce monthly repayments
The need to borrow more money for reasons such as home improvements or potentially for paying off other debts
Interest in changing to a different type of mortgage
When’s the best time to remortgage?
Timing is crucial when it comes to remortgaging. The best time to consider it is when:
Your fixed-rate mortgage deal is ending
You can secure lower interest rates than your current rate
Your home's value has significantly increased
The benefits of remortgaging outweigh the costs involved
It's advisable to start looking for a new deal about six months before your current one expires and lock in a new deal around three months in advance.
What will lenders check when I remortgage?
Just as when you took out your original mortgage, a lender will want to be confident that you are who you say you are and can afford the repayments.
They'll conduct similar checks to ensure your financial stability hasn't changed detrimentally.
Preparing documentation
It's wise to prepare your documentation in advance. Some lenders may not accept printouts and could require original copies. You'll likely need:
Last three months' bank statements
Last three months' pay slips
Last three years' accounts/tax returns if self-employed
Latest P60 showing income and tax paid
Passport for identification
Proof of address, such as utility bills or council tax bill
Can I remortgage with the same lender?
Yes, remortgaging with the same lender is possible and is known as a 'product transfer'. This can be a time and money saver, as there may be no valuation or legal fees.
Existing lenders may not require additional credit checks due to the established track record.
However, don't just settle for a deal that's slightly better than the SVR. It's worth comparing the market for better deals, even if it involves additional fees.
Understanding early repayment charges
Early repayment charges 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 early repayment charges decrease over the term of your mortgage.
These fees can be substantial and should be understood before committing to a new mortgage deal.
Will I have to pay a fee to remortgage?
When taking out a new mortgage deal, you may encounter several fees:
Booking or arrangement fee.
Valuation fee.
Legal fees.
Mortgage exit fee.
It's important to consider these fees when comparing deals, as mortgages with lower interest rates may have higher fees.
In some cases, it might be cheaper overall to choose a mortgage with a higher interest rate but a lower fee.
Can I be turned down for a remortgage?
If your personal circumstances and property value have not significantly changed, remortgaging should not be an issue. However, changes such as job loss, reduced earnings, becoming self-employed, or increased financial commitments can affect your chances.
Additionally, a drop in home value could impact the loan-to-value (LTV) ratio and lenders' willingness to lend.
If the property drops in value so that you now owe a higher percentage, banks may be reluctant to lend to you. Even with significant changes in personal circumstances, existing lenders may still offer a new deal due to the existing relationship.
Over time, as you pay down the mortgage balance and the LTV ratio decreases, better mortgage deals may become available.
The role of credit scores in remortgaging
Your credit score plays a significant role in a lender's decision-making process. It reflects your reliability based on your financial history.
You can stay on top of it by using MoneySuperMarket’s Credit Monitor service, which shows you your credit score and provides free, personalized tips on how to improve it.
Negative equity and remortgaging
Negative equity occurs when you owe more on your mortgage than your home's value.
This situation can make remortgaging challenging, with lenders more likely to move borrowers to an SVR mortgage. One potential solution to exit negative equity is to overpay on your mortgage.
Choosing the right type of mortgage
When remortgaging, you'll encounter two main types of mortgages: fixed-rate and variable-rate.
A fixed-rate mortgage has a set rate of interest for a stated period, allowing you to guarantee your mortgage payments regardless of external interest rate changes.
On the other hand, variable-rate mortgages can be unpredictable, affecting your budgeting.
These mortgages come in various forms, such as standard variable rate, discounted, and tracker mortgages, with explanations for each.
Interest-only vs. repayment mortgages
The alternative is an “interest-only” mortgage. You pay just the mortgage interest each month, not any of the capital debt.
At the end of the term, the initial debt will still be outstanding, requiring a repayment plan.
A repayment mortgage is where you pay both the interest and part of the capital debt each month.
Deciding on mortgage term length
Mortgage terms can vary, and the length you choose affects both your repayments and the total interest paid.
It's often beneficial to reduce the mortgage term upon remortgaging to avoid resetting the term length.
Moving home and your mortgage
If you're moving to a new home, you might be able to "port" your mortgage. This process involves an affordability assessment and 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.
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.
How often should I remortgage?
It's advisable to consider remortgaging before the introductory period of your current deal expires to avoid higher interest rates.
The simplicity of a product transfer
A product transfer is when you switch to a different mortgage product with the same lender for the same amount. This process is quicker and easier than a full remortgage.
The benefits of using a broker
Using a fee-free mortgage broker can guide you to the best remortgaging options, whether with your existing lender or a new one.
They can also advise on whether to port a mortgage or take out a new one when moving house.
Compare remortgage deals
You can use MoneySuperMarket to compare deals available from across the market.
Your home may be repossessed if you do not keep up repayments on your mortgage.
