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What is a Remortgage
A remortgage is where you take a new mortgage on a property you already own. This could be to replace the mortgage you already have, or to borrow money against your property.
The chances are the mortgage on your property is the biggest financial loan you have. It is therefore logical that making sure this loan is on a good mortgage deal can save you the most money. Sometimes, £1,000’s per year.
What Types of Remortgage Are Available
The types of remortgage available are the same as the types of standard mortgage. Generally lenders offer fixed rate mortgages, tracker mortgages, and discounted mortgages.
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Affordability
Before remortgaging you should check you can afford the monthly payments. This may sound odd; you will have been making payments for some time and are perhaps hoping to save money as a result of the remortgage. Any new lender will conduct an affordability assessment based on their own specific criteria.
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Should I Stay With My Current Mortgage Lender
When considering a remortgage it is important to look at what is available from your current mortgage lender and other mortgage providers. In many cases the best overall mortgage deal is not with your current mortgage lender. When considering what is available to you the interest rate on offer is obviously very important. But you should also consider the fees involved as many lenders offer low interest rates but charge higher fees to compensate.
Lenders often incentivise people to remortgage by offering a free valuation service, free legal assistance, or cashback on mortgage completion. These incentives can offer a considerable financial advantage over similar mortgage products and should be taken into account when calculating the overall remortgage saving.
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Why Should I Remortgage
To save money
The most common reason to remortgage is your current interest rate deal is coming to an end. After this period the mortgage will go on to the lenders Standard Variable Rate (or SVR). The SVR can be much higher than the rate you have been paying during the initial period. Therefore, when the mortgage reverts onto the SVR, the monthly mortgage repayment will usually increase significantly. It makes sense to start looking for a new mortgage about three months before the end of your current mortgage rate deal.
To borrow more money
It is possible your current lender has declined to lend you further money or perhaps they are not offering an attractive mortgage deal. An alternative mortgage lender may be able to offer more attractive lending terms or allow you to borrow more money overall. In general lenders do not like remortgages to buy land or invest into a business. Normally lenders are happy to consider a loan for a new car or holiday, or home improvements. Depending on the amount and the purpose for the loan, the lender may ask for evidence of what you are spending the money on.
For a better rate
You may simply be considering switching to a better deal. Once thing to consider is many fixed, tracker and discounted rates have early repayment penalties within the initial rate period. This means if you repay the debt early the mortgage lender can charge you a percentage fee (usually 1% to 5%). This means it often makes financial sense to wait and complete the remortgage after the early repayment penalty period. It may make sense to remortgage and pay an early repayment charge in some circumstances. This could be if you have a large amount of mortgage debt. It could also be if the interest rates available now are much less than when you originally took the mortgage out. A mortgage broker can look into this for you.
Increase in property value
If the value of your property has increased significantly since you took out your current mortgage you could get a better mortgage deal. Mortgage lenders offer mortgage deals in interest rate bands based on loan to value (LTV). LTV is the amount of loan compared to the value of the property. An 80% LTV on a property worth £500,000 would be £400,000.
To obtain an interest only mortgage
Some lenders do not allow you to take an interest only mortgage. Those that do insist you have a solid repayment strategy to repay the mortgage capital by the end of the term. However interest only mortgage (or part interest only) can be appropriate in some circumstances. You should discuss with a broker whether this is suitable for you.
Flexibility
You may wish to pay off your mortgage significantly. You may wish to take advantage of a specific mortgage product to offset your savings against the interest, or take a payment holiday. Before remortgaging it is important to consider the overall cost of doing this.
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Credit Score
If you remortgage to a new lender this will involve a credit score check. Therefore, you should consider your remortgage carefully if you have had any missed payments or more serious credit issues. You should also consider if you have new debt such as credit cards or loans since taking out the mortgage. Sometimes the best advice is to stay with your existing lender. This does not necessarily mean staying on the existing mortgage, as your lender may be able to offer you a better deal. A mortgage broker will be able to assess your circumstances and provide individual advice. A good starting point is to check your credit report.
We use Check My File to do this because they compare credit records stored at the top three credit reference bureaus. Different information may be stored at each one and the lender may use one or more. Check My File saves checking each one individually. You can access a free 30-day trial here: Check My File
Is it Easy to Remortgage?
It’s fairly easy to switch mortgage lender and a mortgage broker can manage the whole process for you.
You will have to provide some initial documentation but this won’t be as cumbersome as when you first bought a property. A mortgage broker will usually ask you for:
- Proof of your identification such as a passport
- One month’s bank statements showing your regular income being paid in
- Your last payslip
- A copy of your Credit Report
The mortgage broker will spend some time with you either in person or over the phone or video chat. They will do this to understand your circumstances and objectives. This will usually take 30min – 1 hour.
After an initial discussion the mortgage broker will be able to research the most appropriate mortgage for you. The most appropriate mortgage is the cheapest mortgage for you over the initial period, considering any specific circumstances or requirements you have. The mortgage broker will recommend this mortgage to you.
The broker will provide you with evidence of their research and the recommendation they have made. They will take the time to discuss all the salient points with you. If you are happy with their advice, they will submit all the paperwork to the mortgage lender and manage the process.
You may have to pay a legal fee or a fee to value your property. If you do not wish to pay this you should look for a deal which includes special incentives. Many lenders offer remortgage incentives such as these.
Mortgage Prisoners
In 2014 changes were introduced to the way lenders calculate affordability when applying for a residential remortgage. This meant that you may have passed the affordability criteria when you took the mortgage prior to 2014, but now you do not. As such you may be unable to remortgage, even if you have a full history of making payments every month and the remortgage would save you money. This is called being a Mortgage Prisoner.
The Financial Conduct Authority (FCA) has now issued further guidance to mortgage lenders about Mortgage Prisoners. This allows lenders to offer more lenient affordability assessments for remortgages. To be considered you must:
- Require a residential remortgage
- Be up-to-date with all mortgage payments over the last 12 months
- Not require any additional borrowing
- Not be moving home
These are the minimum requirements and each lender will have other additional requirements you may need to meet. Lenders do not have to use these new rules so it is important to speak to a mortgage broker to assess your options. We can help you do this.
You can read more about the FCA guidance here.
You can also access additional advice including a Mortgage Prisoner Eligibility Tool on the The Money Advice Service website.
Can I Remortgage to Buy Another Property
Yes, this is a commonly acceptable reason to remortgage. There are of course lenders who do not accept raising capital to purchase a property but the majority of lenders do.
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