Remortgage, Remortgage, Remortgage
Are you thinking about remortgaging your property? Are you not sure what a remortgage is and if this is a good option for you? Latest Deal is here to help you understand what a remortgage is and everything you need to know about remortgaging your property.
What is remortgage?
A remortgage is a new mortgage with a different or current lender for the same property you already have a mortgage on. Learn here what a mortgage is.
Remortgage is also known as borrowing more money from the current lender. This can also be called an equity release, and we have a complete guide about it. Learn more about equity release here.
This article will talk about the first scenario, when you are looking for a better mortgage deal instead of borrowing more money.
When should I remortgage?
The point of remortgaging your property is to get a better deal, a cheaper mortgage.
A few years down the road on your mortgage, your financial situation could have changed and/or the price of your property could have gone up.
That means you have the power to negotiate and get a better mortgage deal.
You can remortgage at any time, as long as you pay all the necessary fees that come along with it.
Although, usually, you need to wait at least six months after getting a new mortgage deal to be able to remortgage.
On the other hand, it's recommended that you wait until the end of your fixed-rate term.
Usually, when your fixed-rate term arrives, your mortgage gets more expensive, and then it's time to look for a better deal.
In the UK, the fixed-rate terms can go up to five years. In most mortgage deals, they are around two to three years.
How to remortgage
Before deciding if you want to remortgage your property, you need to make sure that this is the right financial move for you.
We recommend talking to a mortgage broker to see your options and advice on how to choose the right mortgage to save you money.
It's essential to keep in mind that to leave your current mortgage, in most cases, you will need to pay an exit fee, also known as an early repayment charge. This could cost thousands of pounds.
When you choose to remortgage, it's almost like you are applying for a new mortgage, so you need to decide the best type of mortgage for you again. Check some types of mortgages here.
Finally, you will need to pay some of the fees you paid during your first mortgage deal again.
These fees include:
- arrangement fee
- application fee
- valuation fee
- mortgage broker fee
- and conveyancing fee
These fees could also cost you thousands of pounds. Learn more about conveyancing here.
IMPORTANT NOTE: Although a remortgage could mean saving more money in the long run, it also means spending money on fees. That's why it's so important to put everything on paper before making such an important decision.
Reasons to remortgage
There are many reasons to remortgage, below Latest Deal has listed nine of them:
Reason #1 To take advantage of better interest rates, paying less interest moving forward.
Reason #2 You can have the opportunity to change your mortgage type, picking one that wasn't available to you in the past, but now is. Learn more about types of mortgages here.
Reason #3 You can release equity. Your property's value can go up with time, especially if you have done renovations and improvements. If your property's value has increased since taking out your first mortgage, you now own more equity in your home. With a remortgage, you can release your equity. Learn more about this here.
Reason #4 Your current mortgage deal is about to finish. If you have come to the end of your fixed-rate term, then a remortgage could be a good option for you.
Reason #5 Your home's value has increased considerably. Therefore, you can apply for a lower loan to value the mortgage.
Reason #6 If you are concerned about increasing interest rates, you can apply for a cheaper mortgage.
Reason #7 You want to overpay your mortgage, and your lender does not allow you to. If you're going to overpay your mortgage, getting a remortgage is a great opportunity. Once you leave your old mortgage deal, you can increase your equity and get a lower mortgage for the rest of your property.
Reason #8 To get a mortgage deal that allows mortgage holidays and overpayments. Some lenders have a better policy for mortgage holidays and overpayments.
They give more flexibility to make bigger chunks of payments or to take a break from payments for a period of time.
Reason #9 You are not happy with your current mortgage lender. If you are not satisfied with your current mortgage lender, you can move to another one, as long as you pay the necessary fees. You can also complain to the Financial Ombudsman Service (FOS).
The cons of remortgaging
As mentioned above, there are many reasons to get a mortgage, but on the other hand, we can't deny that there are cons of remortgaging. These include:
- You need to be in good financial shape and have an excellent credit score.
- You could pay thousands of pounds in fees, including:
- Exit fee, a fee you need to pay depending on your mortgage deal to exit it.
- Arrangement fee, a fee you need to pay to get your new mortgage deal.
- Booking fee, a fee you pay to secure a specific type of deal. This fee is also called an application or reservation fee.
- Valuation fee, a fee you pay to evaluate your property's value.
- Mortgage broker fee, a fee you pay if you use the services of a mortgage broker.
- Conveyancing fee, a fee you pay if you use the services of a conveyancer.
- You need to own at least 10% of your property to be able to remortgage. This is applicable for people that have 95% mortgages or 100% mortgages as their first mortgage.
- Your financial circumstances may not have changed much, even if you have a new job with a better salary. Remember, mortgages are all about reliability and stability. If you just got a new job, this is not as secure as being in the same position for a couple of years, for example.
When shouldn't you remortgage?
There are some situations when it is not recommended to remortgage. These include: when your mortgage debt is small, around £50,000 or less, when your early repayment charge is expensive, when your financial situation has changed due to unemployment, and when your property's value has decreased.
IMPORTANT NOTE: Only a mortgage broker will be able to tell you when you shouldn't remortgage according to your situation. It would be best if you looked for professional advice before deciding on getting a remortgage.
Remortgaging checklist - What to think about before getting a remortgage
- Make sure your LTV (loan to value) has lowered since the beginning of your mortgage deal. A lower LTV means better remortgaging deals. Loan to value indicates the amount of money you need to borrow from the lender to afford the rest of your property.
For example: If your first mortgage was 85% LTV with a 15% deposit and after a couple of years you have made all the monthly repayments on time and your property increased in value and now you own 30% of the property, then your remortgage will be 70% LTV.
- Make sure you know exactly when your fixed-rate term ends. You will need to apply for a remortgage at least four weeks before it ends with the same lender and at least eight weeks before it ends with a new lender.
IMPORTANT NOTE: You can start looking for remortgage deals up to six months before the end of your fixed-rate term. Also, take into account that the remortgaging process can take some time to be approved.
- Make sure you compare remortgage rates before accepting a deal with your current lender.
- Make sure you check all the costs involved with your remortgaging and compare how much money you will save if you remortgage.
- Make sure you have kept a good credit score, otherwise you could be rejected.
How to remortgage — Step by Step process
If you have decided that remortgaging works for you, these are the steps that you need to take.
Step 1: Apply for an Agreement in Principle
Before applying for a remortgage, you can also get an Agreement in Principle that works as a test drive to see how much you can afford to pay.
IMPORTANT NOTE: If you are applying for a remortgage with your current lender, the process will be easier and cheaper because your current lender already knows your financial situation and your first mortgage, and there is less paperwork involved.
If you are applying for a remortgage with a new lender, the process will be more complicated and more expensive, because your new lender doesn't know about your financial situation or your first mortgage, and there is more paperwork involved.
Step 2: Apply for a new mortgage
Once you were approved for an AIP, you can then apply for a new mortgage. You will need to provide a range of documents and all the information you have about your current mortgage.
Some of these documents include: your bank statements, your payslips, your latest P60 tax form, your proof of ID and address.
Step 3: Completing your remortgage
Once your new mortgage application has been approved, you will need a conveyancer to handle the transfer of your mortgage.
IMPORTANT NOTE: We encourage you to talk to your mortgage broker before applying for a remortgage. They will advise you on the best remortgage deals available to you and the best time to apply according to your financial situation and your previous mortgage deal.