Remortgaging your property can be a key financial strategy, helping you secure better interest rates, reduce monthly payments, or unlock the equity tied up in your home. However, the process can seem complex, particularly if you’re navigating it for the first time. In this guide titled “How to Remortgage,” we aim to simplify this journey by providing comprehensive, step-by-step instructions and expert advice to help you navigate the remortgaging process. Whether you’re seeking to take advantage of lower interest rates, consolidate debt, or are approaching the end of your fixed-rate term, we will cover the crucial aspects you need to consider.
From understanding what remortgaging entails, identifying when it is the right time to remortgage, preparing your necessary documents, comparing deals, and finally applying for a remortgage, this guide aims to offer you a clear roadmap. It will also delve into more specific scenarios, such as remortgaging as a self-employed individual, nearing retirement, or looking to release equity from your property.
Navigating the remortgaging journey can feel overwhelming, but armed with the right knowledge, it can be a powerful tool in your financial toolkit. Whether you’re a seasoned homeowner or a novice in property finance, “How to Remortgage” is designed to equip you with the necessary insights to make the remortgaging process as smooth and beneficial as possible.
What does remortgage mean?
Remortgaging means replacing your current mortgage with a new one. This can be done with your existing lender or with a new one.
The primary purpose of remortgaging is often to obtain a more favourable interest rate from a different lender or to release equity (the difference between the loan amount and the market value of the property) from the home. The money can be used for various purposes, such as home improvements, consolidating debts, or making a large purchase.
In practice, remortgaging involves several steps. It begins with the homeowner looking for new mortgage offers from various lenders to find a deal that best suits their current needs. Once a new mortgage is secured, the funds from this mortgage are used to pay off the original mortgage. The homeowner then continues making mortgage payments, but now to the new lender, often benefiting from better interest rates or different mortgage terms.
It’s important to note, however, that remortgaging may involve costs such as early repayment charges on your existing mortgage or legal and valuation fees on the new mortgage, so it’s essential to factor in these costs to ensure that remortgaging is financially beneficial.
There are several reasons why homeowners choose to remortgage:
Lower Interest Rate: Mortgage rates may have dropped since you took your current mortgage, or perhaps your initial fixed-rate or tracker deal has ended, and you’ve been moved onto your lender’s standard variable rate, which is often higher. By remortgaging, you could secure a lower interest rate and reduce your monthly payments.
Overpayment Flexibility: You may wish to switch to a mortgage that allows you to make overpayments without incurring a penalty. This could help you pay off your mortgage more quickly.
Fixed Rate: If you’re on a variable rate mortgage and interest rates are predicted to rise, you may want to remortgage to a fixed-rate deal for more predictable future payments.
Releasing Equity: As your home increases in value and you pay down your existing mortgage, you build up ‘equity’ in your property. Remortgaging can allow you to ‘release’ this equity, providing you with a lump sum of cash. This can be useful for home improvements, other large expenses, or investing.
Consolidate Debts: If you have other high-interest debts, you might choose to remortgage for a larger amount and use the extra funds to pay off these debts. However, it’s important to consider the implications carefully because this often means extending the term over which you repay these debts, which could cost more in the long term.
Change in Circumstances: You might need to remortgage due to changes in your personal circumstances, such as a change in your income or a divorce.
Better Terms and Features: Some mortgages offer beneficial features such as an offset account, cash back, or other incentives. You might remortgage to a product with these features.
How does remortgaging work?
Here’s a step-by-step overview of how it typically works:
Review your current situation: Start by understanding your current mortgage deal, including the outstanding balance, interest rate, and any early repayment charges you might incur if you switch before the end of the term. It’s also helpful to know your current property value.
Determine your needs: Identify what you want from a new mortgage deal. This could be lower interest rates, a change in the type of mortgage (such as from an adjustable-rate to a fixed-rate mortgage), or releasing equity from your home for renovations or other expenses.
Research the market: Look at various mortgage deals available from different lenders. Consider both the interest rates and other terms like the flexibility to make overpayments, linked savings accounts, or cash back offers.
Application: Once you’ve found a mortgage deal that suits your needs, you can apply either directly or through a mortgage broker. You’ll need to provide details about your income, expenses, and proof of identity. The lender will also typically require a valuation of your property.
Approval: If your application is successful, the lender will provide a mortgage offer. This outlines the terms of your new mortgage, including the loan amount, term, and interest rate.
Legal Process: Solicitors or conveyancers will usually handle the legal side of the remortgage process, including repaying the existing mortgage with the funds from the new mortgage.
Completion: Once all the paperwork is sorted and the old mortgage has been paid off, your new mortgage begins. You then make your repayments according to the terms of the new agreement.
How do I get a better interest rate?
Getting a better interest rate when remortgaging can be a major goal for many homeowners. Here are some tips to help you secure a lower rate:
Build Up Equity: The more equity you have in your home, the lower your Loan to Value (LTV) ratio will be. Lower LTV ratios often qualify for lower interest rates.
Improve Your Credit Score: Lenders consider a good credit score as a sign of lower risk. Therefore, improving your credit score can often secure you a better interest rate. This can be achieved by consistently making payments on time, reducing your debt, and not applying for new credit frequently.
Shop Around: Don’t just stick with your current lender; compare offers from different lenders. This will give you a wider range of options and potentially better rates.
Consider Different Mortgage Types: Depending on your circumstances, a different type of mortgage may offer a lower rate. For instance, fixed-rate mortgages can offer lower rates for the fixed term, but variable rates could be lower if interest rates are falling.
Hire a Mortgage Broker: A mortgage broker can help find the best rates available based on your circumstances. They have access to a variety of lenders and can do the legwork of comparison shopping for you.
Reduce Debt-To-Income Ratio: Lenders look at how much of your income is going towards debt repayment. If you can decrease this ratio by increasing income or reducing debt, lenders may offer you better rates.
Consider Shorter Mortgage Terms: Lenders often offer lower interest rates for mortgages with shorter repayment terms. However, while this may lower the interest rate, it could increase your monthly payments.
How long does a remortgage take?
The length of time it takes to complete a remortgage can vary widely based on several factors, including the lender’s speed, the complexity of your individual circumstances, and whether there are any legal or valuation issues to address. However, as a general guide, the process usually takes between 4 to 8 weeks.
Here’s a rough timeline:
Initial Research (1-2 weeks): This involves assessing your needs, researching different mortgage deals, and possibly speaking to a mortgage broker for advice.
Application Process (1-2 weeks): Once you’ve chosen a lender and a mortgage deal, you’ll submit your application. The lender will assess your financial circumstances, conduct a credit check, and possibly arrange for a valuation of your property.
Mortgage Offer (1-2 weeks): If your application is approved, the lender will send you a formal mortgage offer. You’ll have a chance to review the terms before you accept.
Legal Work (1-2 weeks): A solicitor or conveyancer will handle the legal side of things. This includes ensuring the old mortgage is paid off with the funds from the new mortgage.
Completion: Once all the paperwork is done and the funds from the new mortgage have paid off the old mortgage, your remortgage is complete.
What documents do I need to remortgage my house in the UK?
When remortgaging your house in the UK, you will typically need to provide the following documents to the lender:
Proof of Identity: This could be your passport, driving licence or another form of official photographic ID.
Proof of Address: You may need to provide a utility bill, council tax bill, bank statement, or another document that shows your current address.
Proof of Income: This usually includes your latest three months’ worth of payslips if you’re employed, or two to three years of accounts or tax returns if you’re self-employed. You may also need to provide your P60, which shows your annual income and the tax you’ve paid.
Bank Statements: You’ll typically need to provide three to six months’ worth of bank statements. These help the lender to understand your spending habits and regular outgoings.
Current Mortgage Statement: This shows your mortgage balance, account number, and other details of your current mortgage.
Details of Debts: If you have any other loans, credit cards or financial commitments, you’ll need to provide details of these.
The exact documents required can vary between lenders, so it’s a good idea to check with your chosen lender or a mortgage broker to ensure you have everything you need.
In addition, if you’re planning to consolidate debts or release equity, you’ll need to provide details about why you’re increasing your borrowing, and if you’re paying off debts, you may need to provide statements for these too.
How to compare deals
When comparing remortgage deals, there are several factors you should consider. Here’s how to do it:
Interest Rate: This is the most obvious factor to compare. The lower the interest rate, the less you’ll pay in interest. However, the lowest rate isn’t always the best deal, as other factors can affect the overall cost.
Fixed vs Variable Rate: Fixed-rate mortgages give you certainty about your monthly payments for a set period, whereas variable-rate mortgages can go up or down. Consider which type is most suitable for your situation.
Product Fees: Many mortgage deals come with fees, such as arrangement or booking fees. These can make a big difference to the overall cost of the mortgage, especially if you’re borrowing a smaller amount.
Early Repayment Charges (ERCs): Some mortgages have ERCs if you repay the mortgage early (for example, if you remortgage again or move house). If you think there’s a chance you might need to repay the mortgage early, consider these charges in your comparison.
Incentives: Some lenders offer incentives like cashback, free legal work, or a free valuation. These can make the deal more attractive, but they shouldn’t be the only factor you consider.
Term of the Mortgage: The length of the mortgage term can affect both your monthly payments and the total amount you repay.
Flexibility: Some mortgages offer features like the ability to overpay or take payment holidays. If these features are important to you, consider them in your comparison.
Lender’s Reputation: Customer service and reliability can be important factors. Look at reviews or ask for recommendations.
One of the easiest ways to compare remortgage deals is by using mortgage brokers. They can also be helpful, as they can provide personalised advice and access to deals that aren’t available directly from lenders.
Can you remortgage early?
Yes, it is possible to remortgage early, but whether or not it’s a good idea depends on a variety of factors.
- If your current mortgage deal has a fixed, tracker, or discount rate that hasn’t yet ended, you could face an Early Repayment Charge (ERC) for remortgaging before the term is up. These charges can be quite hefty, often a percentage of the outstanding loan, so it’s important to factor this into your decision. The details of any ERC should be outlined in your original mortgage contract.
- However, some mortgage products do allow for overpayments or even full repayment without penalties, so it’s worth checking the terms of your existing mortgage.
- Another thing to consider is that some lenders will allow you to secure a new mortgage deal up to six months before your current deal ends. You can agree on the new mortgage and set it to start when your current one ends, avoiding the ERC.
- Finally, keep in mind that remortgaging also involves other costs, such as valuation fees, legal fees, and potentially a booking or arrangement fee for the new mortgage. It’s essential to consider these costs when deciding whether to remortgage early.
How much can I borrow?
The amount you can borrow when you remortgage depends on several factors:
Property Value: The value of your property is a key factor. Typically, lenders will allow you to borrow up to a certain percentage of your property’s value, known as the Loan to Value (LTV) ratio. For example, if the LTV is 80%, you could borrow up to 80% of your property’s value. However, the best interest rates are usually offered to those with lower LTV, say 60%.
Income: Lenders will look at your income to assess how much you can afford to borrow. They might allow you to borrow a multiple of your annual income – typically around 4-4.5 times, but it can be higher in some cases.
Affordability: Lenders also consider your outgoings and existing financial commitments (like loans, credit card debts, and regular expenses) to ensure you can afford the repayments on the amount you wish to borrow.
Credit Score: Your credit history and score can impact how much a lender is willing to offer you.
Interest Rates: The current interest rates will also affect how much you can borrow. If rates are low, you may be able to afford to borrow more since your monthly repayments will be lower.
Equity: The amount of equity you have in your home (the difference between the market value of your property and the outstanding mortgage balance) can also affect how much you can borrow.
How soon can you remortgage my house?
You can typically start the process of remortgaging your house at any time, but whether it’s beneficial or cost-effective to do so will depend on your specific circumstances, particularly the terms of your existing mortgage.
How to remortgage to release equity
Equity release through remortgaging involves switching to a new mortgage deal that allows you to borrow more than you currently owe. The difference is then provided to you as a cash lump sum. Releasing equity from your home through remortgaging is a common practice. Equity is the amount of money you’d have left over if you sold your property and paid off your mortgage.
Here are the steps involved in the process:
Step 1: The first step is to find out how much equity you have in your property. This is the difference between the market value of your property and the outstanding amount of your current mortgage.
Step 2: Before proceeding, ensure that you can afford the increased mortgage repayments that will come from borrowing more. Lenders will also evaluate this as part of their affordability checks, considering your income, outgoings, and other financial commitments.
Step 3: Research the market for the best remortgaging deals. You can do this independently or with the help of a mortgage broker. Remember to consider the interest rates, terms, and any fees associated with the new mortgage.
Step 4: Once you’ve found a suitable mortgage product, you can apply either directly or through a broker. The lender will assess your application, conduct a valuation of your property, and carry out credit and affordability checks.
Can you remortgage with the same lender?
Yes, you can remortgage with the same lender. This is often referred to as a “product transfer”. If you’re happy with your current lender and they’re offering a competitive new deal that fits your needs, this can be a straightforward option. Here are a few reasons why you might consider a product transfer:
Remortgaging with the same lender can be simpler than switching to a new one. The lender already knows you and your payment history, which can simplify the application process.
The process of remortgaging with the same lender can be quicker. Because they already have most of the information they need about you and your property, you may not have to go through as many checks, and a property valuation might not be necessary.
Some costs associated with remortgaging, such as valuation and legal fees, may not apply if you’re staying with the same lender.
However, it’s important to still consider other lenders. Your current lender might not always offer the best deal for your needs, so it’s worth researching and comparing the mortgage products available across the market. It could be more financially beneficial to switch to a different lender, even after accounting for any associated fees.
How easy is it to remortgage?
The ease of remortgaging depends on various factors, including your personal circumstances, the terms of your current mortgage, and the mortgage market at the time.
If your financial situation is stable or has improved since you took out your original mortgage, and you have a good amount of equity in your home, remortgaging can be relatively straightforward.
Do you need a deposit?
No, you generally do not need to provide a deposit to remortgage. This is because remortgaging involves replacing your existing mortgage with a new one, and the equity that you have built up in your property effectively acts as a deposit.
The equity in your property is the difference between the value of your property and the amount left to pay on your existing mortgage. The more equity you have in your property, the lower the Loan to Value (LTV) ratio of your remortgage will be. The LTV ratio is the percentage of the property’s value that you’re looking to borrow.
Lenders typically offer better interest rates to borrowers with lower LTV ratios because they’re seen as lower risk. So, if you have a significant amount of equity in your property, you’re likely to have access to more competitive remortgage deals.
However, if you’re in a situation where you have little or negative equity (your property’s value is less than your current mortgage balance), remortgaging can be more challenging. In these cases, you may need to provide additional funds—similar to a deposit—to lower the LTV ratio and make remortgaging viable.
Can you remortgage during a fixed term?
Yes, you can remortgage during a fixed-term period, but whether it’s financially beneficial or practical to do so depends on a few factors:
Early Repayment Charge (ERC): Most fixed-term mortgages come with an ERC if you decide to exit the mortgage during the fixed-term period. This charge can be substantial, often a percentage of the outstanding mortgage balance. It’s crucial to check the terms of your mortgage to see if an ERC applies and, if so, how much it would be.
Exit Fees: In addition to the ERC, there may be exit or administration fees to pay when you leave your current mortgage.
Remortgaging Costs: There are costs associated with setting up a new mortgage, including valuation fees, legal fees, and potentially arrangement fees for the new mortgage.
In some cases, it might still be worth remortgaging during a fixed term. For example, if interest rates have dropped significantly since you fixed your rate, the potential savings on your monthly payments could outweigh the costs.
Can you remortgage to pay off debts?
Yes, you can remortgage to pay off debts. This is often referred to as debt consolidation. The idea is to increase your mortgage amount and use the additional funds to pay off other debts, typically unsecured debts like credit cards or personal loans.
Remortgaging to consolidate debts can have several benefits:
- Mortgage interest rates are usually lower than the rates for unsecured borrowing, so you might save money on interest charges.
- By consolidating your debts, you’re reducing your monthly repayments to one lender instead of several, which can simplify your financial management.
- By extending the repayment over a longer term, you may reduce your monthly payments, making them more manageable.
However, it’s also important to consider the potential downsides:
- Extending the term of your debts via remortgaging could result in paying more interest overall, even if the rate is lower.
- By consolidating unsecured debt into your mortgage, you’re turning it into secured debt. If you can’t keep up with repayments, your home could be at risk.
What costs are involved in remortgaging a property?
Remortgaging a property involves several potential costs, which may include:
Early Repayment Charge (ERC): If you’re still within an introductory period (such as a fixed or discounted rate deal), your current lender may charge an ERC if you repay your mortgage early. This can often be a significant amount, based on a percentage of the outstanding mortgage balance.
Exit Fees or Redemption Charges: These are administrative fees that your current lender may charge for processing the repayment of your mortgage.
Arrangement Fee: This is a fee charged by the new lender for setting up the new mortgage. Depending on the lender and mortgage product, this can be a flat fee or a percentage of the loan. Some lenders may offer “fee-free” mortgage deals, but these can have higher interest rates.
Booking or Application Fee: Some lenders may charge this upfront fee when you apply for a new mortgage.
Valuation Fee: The new lender will want a valuation of your property, for which they may charge a fee. The cost can vary depending on the size and value of your property.
Legal Fees: Remortgaging involves legal work to remove the old lender’s interest in your property and add the new lender’s. You’ll need a solicitor or conveyancer to handle this, which will involve a fee. In some cases, lenders offer a free basic legal service as part of the remortgage deal.
Broker Fees: If you’re using a mortgage broker to find the best deal, they may charge a fee for their service.
Before deciding to remortgage, it’s crucial to consider all these costs to ensure that remortgaging will be financially beneficial. In some cases, the potential savings from a lower interest rate or other benefits can outweigh these costs. In other situations, it might be better to stick with your current mortgage deal until the costs are lower, such as when your ERC period has ended.
Can I remortgage if I am self-employed?
Yes, being self-employed does not preclude you from remortgaging your property. However, proving your income may be slightly more complex than for someone who is employed with a regular salary. Here’s what you need to know:
Proving Your Income: Lenders will want evidence of your income to ensure that you can afford the mortgage repayments. As a self-employed person, you can typically do this by providing:
SA302 forms: This is a summary of your income reported to HMRC and can be requested by those who are self-employed for proof of income.
Tax Year Overviews: These are official HMRC documents that show the amount of tax due after your self-assessment.
Business Accounts: Some lenders might request to see one to three years’ worth of accounts, preferably ones that an accountant has prepared.
Bank Statements: Lenders may also wish to see your bank statements to assess your financial management.
Stability of Income: Lenders may want to see that your income has been stable or increasing over the years. If your income varies significantly from year to year, this could affect your ability to get a mortgage.
How many times can you remortgage?
There’s technically no limit to the number of times you can remortgage. However, each time you apply for a remortgage, the lender will assess your financial situation, credit history, and the equity in your property.
Can I remortgage if I’m retired or nearing retirement?
Yes, it’s possible to remortgage if you’re retired or nearing retirement, but there are some additional considerations and challenges you may face:
Age Limits: Some lenders have upper age limits for mortgage borrowing, which might be the age at the end of the mortgage term rather than the age when you start the mortgage. These age limits can vary widely between lenders.
Income: Lenders will still want to see proof of income, even if you’re retired. This can include pension income (both state and private), investment income, rental income, or part-time employment income. They’ll also look at your regular outgoings to ensure that you can afford the mortgage repayments.
Mortgage Term: If you’re nearing retirement, lenders will want to see evidence of how you plan to meet your mortgage repayments after you stop working.
Equity: If you have a significant amount of equity in your home, you may find it easier to remortgage.
Retirement Interest-Only Mortgages: Some lenders offer retirement interest-only (RIO) mortgages, where you only pay the interest each month and the loan is repaid when the property is sold, you move into long-term care, or you pass away.
Should I use a mortgage broker to remortgage my house?
Yes. There are several reasons why you might want to consider using a broker to remortgage your house:
Access to More Products: Mortgage brokers often have access to a wider range of mortgage products, including deals from lenders that aren’t available to the public directly.
Saves Time: A broker can handle much of the paperwork and communication involved in the process, saving you time and effort.
Tailored Advice: A mortgage broker can provide personalised advice based on your circumstances. This is especially useful if your situation is complex, for example, if you’re self-employed, have poor credit, or are looking to consolidate debts.
Negotiation: A broker may be able to negotiate a better deal on your behalf, potentially saving you money in the long run.
Costs: While there’s a cost involved in using a broker, the potential savings from a better mortgage deal could outweigh this. While some brokers receive a commission from the lender, others charge the borrower a fee. Make sure you understand the broker’s fee structure before you proceed.
Remortgaging can be a significant financial decision, offering the potential for savings, improved loan terms, and financial flexibility. However, it’s a process that requires careful thought, comprehensive understanding, and meticulous planning. From considering your reasons for remortgaging, understanding the potential costs and benefits, and navigating the application process, every stage has its importance.
In this guide, we’ve aimed to demystify the process of remortgaging and provide practical advice to help you navigate this journey successfully. Regardless of your circumstances, whether you’re self-employed, nearing retirement, or looking to release equity from your property, understanding the nuances of remortgaging is vital.
Remember, while the potential benefits can be substantial, the right remortgage deal depends on your unique situation. It’s crucial to weigh all factors, possibly with professional advice, and choose a path that aligns with your financial goals and capabilities.
We hope that this guide has equipped you with the necessary knowledge to make informed decisions about remortgaging, allowing you to take control of your property finances and move forward with confidence.