For many homeowners, mortgage payments are likely to be the biggest ongoing monthly expense. If you have a loan on your house and don’t know anything about remortgaging, now is the time to put that right. You could save money when you remortgage your home, with no discernible downsides to put you off. So read on as we take you through the remortgage process, which can also be used to take a lump sum out of your home.
What is remortgaging?
Very simply, remortgaging is where you switch your mortgage to a better deal, potentially saving you thousands of pounds on your annual repayments or meaning that you can pay it off quicker. You can also remortgage to release equity, which is where you increase the amount you are borrowing to free up some cash. This reduces the share you own in your property, but you could remortgage for home improvements, to support a loved one or even to buy a new car.
Remortgaging your home can be daunting, particularly if getting your initial mortgage proved to be a little tricky or time consuming. If you’re apprehensive about switching provider, your current lender may have remortgage deals you can take advantage of. This will mean you don’t have to go through the same affordability checks, application process or the expense of a new valuation as when you switch. However, another bank or building society may be able to offer you a much better deal.
When to remortgage
There’s no time like the present if your current deal’s about to end. Even if you’re on a fixed term deal with a number of years left to run, it could be worth checking out the exit fees involved. You can add the cost of terminating your contract early to any fees charged for a new deal, and work out whether you’ll be saving money based on your new monthly payments.
Shopping around for the best interest rates and for products with more flexibility could make a huge difference moving forward, particularly if your home has substantially increased in value. If this is the case, you’ll own a lot more equity in your property, which you could either take out as a cash sum or use to get a better interest rate and lower monthly repayments. This is because you’ll have a better loan to value (LTV) ratio, giving you access to the best rates. Early repayment can be an option, or if you’re on an interest-only mortgage, it could be a good time to switch to a repayment mortgage.
When not to remortgage
If the value of your home has dropped, remortgaging may not make sense, even if interest rates appear to be favourable at first glance. This is because you’ll own less equity, so your LTV ratio will be higher. To work out how much equity you currently own, all you need to do is subtract the amount remaining on your mortgage from the value of your property. If you have very little of it then a remortgage could be a bad idea, especially if you already have a decent interest rate.
Likewise, if you don’t have much left to repay on your mortgage, the savings you can make by changing deals may be outweighed by the fees and costs involved in switching. High early repayment and set-up fees can also put a dampener on your remortgaging ambitions, along with any credit problems you’ve had since you last took out a mortgage.
How long does a remortgage take?
The remortgaging process typically takes between four and eight weeks after application, while you can usually expect the quickest turnaround when you stick with your current lender. As you want to avoid moving onto a standard variable rate (SVR) – which is likely to involve much higher interest rates – you’ll need to time your remortgage to coincide with the end of your current deal.
As you can secure a new deal six months in advance, it’s prudent to start the remortgage process as early as possible. This gives you or your mortgage broker the time to compare products and find the best rate, as well as the opportunity to sort out your finances ready for inspection and to get all of your documentation in order, including things like your identification, bank statements, pay slips and proof of address. If you’re self-employed or have your own business, you’ll usually need to supply your last three years’ accounts or tax returns.
How does remortgaging work?
If you’re asking yourself should I remortgage, it’s important to take several key considerations into account. Whether you’d like to bring down your monthly payments, you’re planning a new extension, or you want to remortgage to pay off debt, reviewing the steps you’ll need to take can help you make the best decision for your own personal circumstances.
Disclaimer: This article is for informal and general advice on remortgaging