Almas Uddin
Founder and Mortgage Advisor
21 Mar 2020
How to Remortgage Your Home
Are you considering remortgaging your home? While most homeowners are aware of the term remortgaging, many of them are not entirely sure what it means in practical terms or whether it’s the right move for them. This handy guide seeks to clear up any confusion by taking you through the process step by step, as well as providing advice on whether or not it’s the right choice for your circumstances.
Many people choose to remortgage their house in order to raise the funds to pay off debt, invest in home improvements or simply reorganise their repayment schedule to take advantage of monthly savings. Having said that, it’s not the ideal choice for everyone. Read on to find out when remortgaging makes sense, what exactly the process entails and the expenses involved in doing so.
What does the word remortgage mean in practical terms?
The term remortgaging refers to a homeowner who wishes to transfer their mortgage from one lender to another, without moving property. It’s most commonly sought when the current product from an existing lender has come to an end.
Why do people remortgage?
As well as remortgaging when a product expires, many borrowers also voluntarily switch their mortgage provider on a regular basis every few years, in order to take advantage of the preferential rates that a different lender may provide. Those who do not do so, instead choosing to remain on their existing mortgage provider’s standard variable rate (SVR), could be missing out on significant monthly savings, as well as a number of other benefits.
Here’s a quick glance at some of the main reasons why people remortgage below:
If your fixed-rate or preferential deal is about to come to an end, it’s likely you’ll be automatically transferred to your existing lender’s SVR. This is often much higher than their introductory rates, meaning that it might be beneficial to switch lenders by starting a new deal.
Before immediately cutting off ties with your previous lender, it’s a good idea to contact them and discuss your options. Since they will be keen to retain you as a customer, there’s a good chance they will offer you a range of preferential rates that are only available to existing customers. If that’s the case, you could take advantage of that deal and make attractive savings, without having to switch lender.
If on the other, your existing lender cannot offer you any terms amenable to you, it might be an idea to consider remortgaging your property and switching to a new provider. Before you do so, it’s advisable to speak to a professional mortgage broker to hear their advice. We can help you compare and contrast different deals, to find the one that’s right for you.
-
To consolidate existing debts
Remortgaging your home gives you the opportunity to consolidate other existing debts, such as outstanding credit card balances or car repayments. By releasing some of the equity contained in your property and remortgaging for a higher value, you can use that surplus cash to pay off some debts and consolidating others into one, manageable monthly repayment with your new mortgage lender.
While this can allow you to better organise your finances, free up immediate capital and comply with repayment deadlines, it’s a good idea to carefully consider all angles before remortgaging for this reason. This is due to the fact that mortgages are generally repaid over much longer periods of time than other personal loans, which means it’s likely that you could end up paying significantly more overall, even though the mortgage has a far lower rate of interest.
Having said that, there are circumstances where remortgaging to consolidate debts really does represent your best option. In any case, it’s vital that you consult a mortgage expert to seek advice before making a decision. In the case that you’re unable to maintain repayments on your mortgage, you could lose ownership of your home.
Should you receive a pay rise or should your property suddenly enjoy an increase in market value, you might wish to remortgage in order to raise funds quickly. These could be put towards such personal pursuits as a home improvement project, the higher education tuition of a child or a wedding. Doing so would eliminate the necessity of taking out a separate loan, which could incur higher costs.
-
To avoid moving to a new house
If your family grows and you need more space, remortgaging your existing property can allow you to make home improvements to it in the shape of an extension or conversion. By adding new rooms or upgrading existing ones, you can adapt to accommodate the developing circumstances within your family, without all the upheaval that moving home necessitates.
When can people remortgage?
At the beginning of any mortgage arrangement, it’s highly likely that you’ll be offered an introductory deal with preferential rates for a limited time period and other additional incentives, such as a complimentary valuation of your property or free legal advice. Once this deal expires, you’ll be moved onto the mortgage provider’s SVR, which is generally far higher than the preferential rate.
It’s possible to begin looking into your options for your next mortgage as soon as six months before your existing deal comes to an end. All mortgage offers can take several weeks to process, as can the legal work that’s involved in completing them. However, all mortgage offers are also usually valid for as long as six months, so it’s normally not a problem to ask your solicitor to hold off making the switch until the old deal has expired, even if everything is ready to go beforehand. It’s good practice to begin looking for preferential rates several months in advance of the expiration of your existing deal, since if a handover to a new provider isn’t in place, you could end up paying the SVR of your current lender, incurring unnecessarily high costs.
What’s involved in the remortgaging process and how long does it all take?
On average, the whole remortgaging process takes between four and six weeks, but it may take less in your situation. It’s a far less complicated transaction than buying a new home, since the property title deeds are already registered under your name. This eliminates a significant chunk of the administrative process.
Our remortgaging process normally takes the following shape:
You request a redemption statement from your existing mortgage provider. This document lists how much is outstanding on the existing mortgage, as well as any fees that are associated with its repayment.
Your personal mortgage broker scours the market to locate the most attractive remortgaging terms for your circumstances.
If you agree with their choice, your broker will contact the new mortgage provider and present your redemption statement to them, applying for a Decision in Principle (DIP).
If the DIP is accepted, your broker will take you through the mortgage application, which they will then submit to the new provider on your behalf. You will be required to submit the appropriate documentation, which may include a form of identification, proof of address, payslips, tax returns, bank statements and the suchlike.
The new mortgage provider will then request a validation report for your home. Your solicitor will contact you regarding the title deeds to the property, as well as any leases on it and any other concerns which might need addressing.
Once your new mortgage provider approves your application, your solicitor will work with you to set a completion date. On this date, your solicitor will use the funds from the new mortgage to repay the balance on the old one, with any surplus cash going to you.
How to choose the right remortgage deal for you
When making a decision over your new mortgage deal, it’s a good idea to compare all of the options on offer and the benefits they provide to your unique situation. Mortgage providers will want you to remortgage with them, which means they will offer a range of incentives (such as competitive interest rates and other perks and benefits) to make their deal as attractive as possible. The terms of one deal can be very different from those of another, as can the circumstances of the borrower – which means that there is no one-size-fits-all approach when it comes to finding the best remortgage deal for you.
You can compare and contrast remortgage deals using the comparison tool on our website, which can allow you to see at a glance which product might be preferential for you.
How to value your home for remortgaging purposes
Prior to beginning the search for a new mortgage provider, it’s necessary to estimate what your home is worth. It’s essential that you remain realistic with your estimation, since a provider will inevitably conduct their own valuation to confirm yours, either via a virtual valuation or an internal inspection.
It’s possible to contract an independent surveyor to carry out a professional valuation of your property, but this will incur a high cost and will not negate the need for the provider to conduct their own valuation as well. It’s advisable to save your money by instead discussing your property’s value with local estate agents, or else using internet websites such as Rightmove or Zoopla to compare your home to others on the market and arrive at estimation in this manner.
What costs and legal fees are incurred in the remortgaging process?
Remortgaging is generally more affordable than purchasing a new home. Many of the charges and fees that are associated with buying a property are either much lower when remortgaging, or else not applicable at all.
When remortgaging your home, you could enjoy a reduction in the following:
The costs charged by your solicitor should be lower than when purchasing a home since the remortgaging legal process is far more straightforward than the buying one.
-
Stamp Duty Land Tax (SDLT).
This tax is only applicable when purchasing a new property.
Since you already own the property in question, there’s unlikely to be a need for you to conduct a survey to ascertain what condition it is in.
Other costs incurred during the remortgaging process could include:
Brokers are experts in the remortgaging market, so it’s advisable to take advantage of their insight to find the product that’s right for you.
These costs are only incurred if you switch mortgage to a new lender before your existing deal expires, but there may be a final administration fee that applies to all closed accounts.
-
Higher lender charges/mortgage indemnity guarantee (MIG) premiums.
These types of charges are far less than common than they used to be and it’s unlikely your new provider will charge them.
Legal services will definitely be required, but many providers may offer a complimentary legal service or cashback earmarked to cover those expenses as an incentive to take their deal.
These will vary depending on the new mortgage provider and the deal they are offering.
It’s possible that the lender will pass the valuation fee onto you, but many will offer a free valuation as an incentive to take their deal.
Before committing to the decision to remortgage, it’s advisable to carefully examine which fees you will be liable to pay – that’s especially true if there is an early repayment charge connected to your current deal. It’s possible that the potential savings you will make by remortgaging will be entirely offset by the fees and charges incurred, so you should only remortgage when you can maximise the savings made.
What do mortgage providers look out for?
When considering whether to approve your remortgaging application, most providers are simply looking for evidence that you can are capable of keeping up your repayment schedule. Here are some ways you can provide that evidence:
It might sound counterintuitive, but taking out credit cards actually boosts your credit score, providing you’re able to meet the monthly repayments. By using the card to only buy things for which you already have the money, then paying off the balance in full at the end of each month, you’ll avoid interest charges and prove that you’re capable of adhering to a credit arrangement. Be careful that you do not miss any repayments, however, since this will damage your credit score and have the opposite of the desired effect.
If you’re able to meet your financial obligations month-on-month, year-on-year, you’ll demonstrate that you’re well-equipped to manage your financial affairs and can cope with the demands of remortgage payments. It will also reflect well on your overall credit score, which is another big indicator of your responsibility that mortgage lenders look at.
-
Cut out unnecessary spending
As well as monitoring your ability to stick to a credit agreement and pay off any monthly bills you owe, mortgage providers will also examine your personal spending habits when compared to your income. How much of your monthly salary are you spending? Cut out unnecessary expenses to maximise your disposable income and demonstrate that you have the funds to pay off a remortgaged deal.
Applicants who have registered to vote have not only helped to provide their identity to potential lenders, but will also allow credit search systems to create a more comprehensive view of their finances over recent years and different home addresses. Make sure that you’re included on the electoral roll – and that all of your information is present and correct – before beginning the remortgaging application process.
Is it possible to remortgage before your existing deal expires?
It is possible remortgage ahead of time, but this will almost always incur an early repayment charge from your existing mortgage provider. This is a fee that comes into effect if you pay off your mortgage within the initial deal window and usually comprises a percentage of your outstanding debt, which can come to a sizable sum.
Early remortgaging can be a difficult process, but we’re experienced in handling it if you believe it is the best option for you going forward. Our advisors are well-versed in all aspects of the early remortgaging process, so we’re on hand to explain your options, locate the deal that’s most suited to your circumstances and provide any advice you may need.
When is it not advisable to apply for a remortgage?
While remortgaging can lead to significant savings for some homeowners, it’s not always the right decision for everyone. Whether or not it makes viable financial sense depends upon your specific circumstances, which is why it’s always advisable to work with a qualified mortgage advisor before making a decision.
Here are a few examples of candidates for whom remortgaging might not be an ideal option. If one or more of these descriptions applies to you – but you’re still keen to remortgage – why not give us a call? As experts in the remortgaging industry, we can work with you to find a solution to your problems.
-
Homeowners with significant early repayment charges
If your current deal still has a long time before it expires, you might find that the early repayment charges are higher than the savings incurred by switching to another provider.
-
Homeowners searching for a small loan
Many mortgage providers will only accept an application to remortgage a property if the desired loan is above £25,000. Since the fees associated with switching to a new provider might offset the savings brought about by the switch, it might be beneficial to stick with your existing provider.
-
Homeowners who have recently changed their employment status
Mortgage providers require evidence which shows that you are capable of meeting your monthly repayments, which is why they wish to know what your estimated monthly income will look like. Homeowners who have recently changed their employment status (from employed to self-employed, for example) may find it difficult to demonstrate this capability, since they have not had time to build up a long enough track record of reliability.
-
Homeowners with a poor credit rating
If you’ve experienced issues in paying off credit repayments in the recent past, it’s possible that many mainstream mortgage providers will refuse your application. In this scenario, sticking with your existing provider might be the best option, but it’s still advisable to consult with a professional broker, as they can advise you of your options.
-
Homeowners with an interest-only mortgage with a high LTV
If your existing mortgage is interest-only and has a high loan-to-value (LTV) ratio, your remortgaging application will most likely be refused by most providers. For example, if the balance of your existing mortgage is over 75% of the overall market value of your home, it’s probable that most providers will decide that there is not enough equity in the property to make it financially viable for them. Again, it’s advisable to consult with a professional to gain a better idea of whether your application is likely to be accepted.
Taking stock of your options
As with all business decisions, it’s a good idea to take stock of all your options before you make up your mind. Our handy tool allows you to compare different remortgage rates from a range of providers, free of charge. This will equip you with a better picture of which product actually suits your circumstances since the cheapest option is not always the ideal one.
We also offer a free mortgage comparison calculator, which allows you to weigh up the costs of your existing mortgage against other deals available on the market. This gives you a concrete idea of how much you can save on a monthly basis.
Finally, we’re always here to help in person where we can. Simply give us a ring on 0330 304 3040 and speak to one of our friendly, experienced professionals, or send us an email at [email protected]. We have plenty of experience in arranging remortgage deals all across the UK, so you can rest assured that we’ll find the right provider and product for you.
Contact us now to discuss your personal options, Revolution Finance Brokers specialise in commercial and residential finance in Essex, Kent, London and Hertfordshire.
.webp)
.webp)
.webp)
