Securing a mortgage is a significant financial decision, often spanning many years. Even after spending considerable time securing a competitive deal, it’s possible that what once seemed ideal no longer meets your needs or provides the best value.
If your current mortgage isn’t offering you the advantages it once did, it could be time to explore remortgaging. By switching to a new mortgage deal, you could reduce your monthly payments, save a substantial amount of money, or gain greater financial flexibility. That said, it’s integral to fully understand the implications and benefits of remortgaging before moving forward.
This guide is designed to walk you through the key aspects of remortgaging. You’ll learn what it involves, how the process works, and when it might be the right time to make a change. Additionally, we’ll provide practical tips to help you navigate the decision with confidence.
Table of Contents
What is Remortgaging?
Remortgaging involves switching your current mortgage to a new deal, typically with a different lender, while staying in the same property. It’s essentially a way to replace your existing mortgage terms with a product that better suits your needs.
How Does a Remortgage Work?
When you remortgage, you’re basically swapping your existing mortgage for a new one, using your home as security. The process involves settling your current mortgage by borrowing funds from the new loan, which then becomes your new financial arrangement with updated terms.
Why Remortgage? – Benefits of Remortgaging
Secure better rates: Mortgage rates are usually lower during the initial years of your loan term. Once this fixed period ends, most lenders will move you to their standard variable rate (SVR), which tends to be higher and can cause your monthly payments to increase. To avoid this, it’s wise to start looking for a better deal about three months before your current term finishes. Unsure of when your initial agreement ends? You can check your mortgage provider’s records or refer to your original contract for clarity.
Benefit from increased property value: If your property has gained value or you’ve made substantial progress in paying down your mortgage, your loan-to-value (LTV) ratio may have improved. This could give you access to better interest rates. The LTV ratio is the proportion of your loan compared to the current value of your property, and a lower LTV can unlock more competitive rates when remortgaging.
Access additional funds: Remortgaging can also be a way to release equity from your home. Whether for home improvements, a second property, debt consolidation, or other purposes, this involves increasing the size of your loan beyond your existing mortgage balance. While this provides you with a lump sum, remember that this also means borrowing more and paying interest on a larger sum, so it’s vital to make sure you can comfortably manage the higher repayments.
Protect yourself from rising interest rates: For those with a variable-rate mortgage, an increase in the Bank of England’s base interest rate can lead to higher monthly payments. In this case, remortgaging to a fixed-rate deal can provide stability and help you avoid future increases in your payments.
What to Consider Before Remortgaging
Changes in your financial situation: Your personal finances could impact your ability to remortgage. If your circumstances have changed – such as losing your job – lenders may be hesitant to approve a new loan. Strict lending criteria require proof of a stable income, so it’s important to ensure your financial position is solid before applying.
Weighing the financial pros and cons: While the prospect of securing a lower rate can be enticing, remortgaging comes with its own set of costs. These can include early repayment charges, exit fees, arrangement fees, as well as the cost of valuation and conveyancing. Before making a decision, it’s crucial to assess whether these expenses are worth the potential savings over the long term.
Your credit history: Lenders will scrutinise your credit profile when considering your remortgage application. A bad credit score or even a recent missed payment can significantly reduce your chances of qualifying for a more favourable rate. Ensure your credit score is in good shape before proceeding, as even small blemishes can have a big impact.
When Should You Remortgage?
While you can technically remortgage at any point, the best time to do so is often towards the end of your current mortgage term. This is especially important if you want to avoid costly early repayment penalties.
Choosing the right moment to remortgage can have a major impact on your financial well-being. Done at the right time, it can help you save money and secure a more favourable deal. However, remortgaging too early or at the wrong time could result in higher costs or repayment challenges.
How Long Does it Take to Remortgage?
Generally, the remortgaging process takes between 4 to 8 weeks, though the exact time frame can vary depending on whether you stick with your current lender or switch to a new one.
If you stick with your existing lender, this can typically be completed in about a month. On the other hand, remortgaging with a new lender involves a more detailed process. As a result, this may take up to two months to finalise.
How to Remortgage
Now that you have a clear understanding of remortgaging, it’s time to begin the process. Here’s a step-by-step guide:
Shop around for the best deal: There’s a wide range of mortgage options available, so it’s important to explore what’s on offer. Start by checking with your current lender to see if they can offer you a competitive rate. Then, consider comparing other deals in the market to guarantee you’re getting the best possible option for your situation.
Gather the required documentation: Before you can apply, you’ll need to prepare key documents, such as bank statements, payslips, and proof of identification. If you’re self-employed or have additional income streams, lenders may also require recent tax returns or SA302 forms to verify your income. Having everything organised in advance will streamline the application process.
Secure an Agreement in Principle: An Agreement in Principle (AIP), also known as a Decision in Principle (DIP), gives you an indication of how much you could borrow based on your financial situation. This step usually involves a soft credit check, meaning it won’t impact your credit score. Having an AIP in place gives you a clearer idea of your borrowing power and can help with your property search.
Submit your remortgage application: Once you have your AIP, you can proceed with your full application. This will require detailed information about your finances, personal circumstances, and the specifics of your existing mortgage. Refer to the documents you’ve gathered earlier to confirm all details are accurate.
Finalise the remortgage: Your new lender will carry out a thorough assessment, including a hard credit check and a valuation of your property. If all goes well, your solicitor or conveyancer will oversee the legal transfer. Before finalising the deal, you’ll be given the opportunity to review the terms and ensure the new mortgage is a better fit for your needs.
Get Expert Remortgage Advice
With so many remortgage options available, it can feel daunting to find the right one. That’s where we come in. Our easy-to-use online platform allows you to compare a wide range of remortgage deals, with thousands of quotes updated daily, ensuring you always have access to the latest and most competitive offers in the UK.
Once you’ve found a deal which suits your needs, our team of knowledgeable advisors is here to offer expert advice, tailored specifically to your financial situation. We’ll guide you through every stage, guaranteeing your remortgage decision aligns perfectly with your goals.
If you have any questions or uncertainties along the way, don’t hesitate to reach out. We’re here to provide clear, reliable advice that’s custom-fit to your unique circumstances, helping you make an informed and confident choice.