Remortgaging is the process of swapping the lender or deal that you currently have on your mortgage for another one, usually because it will save you money or give you better benefits.
The main reasons why you’d want to remortgage are:
- To reduce your payment term
- You can find a cheaper deal but continue to pay the same amount monthly to bring the mortgage to an end earlier.
- To release equity on your home
- If you want to undertake any home renovations, then you can remortgage at a higher value than you currently owe to release some equity.
- To increase flexibility
- If you need more flexibility in your mortgage agreement, such as to be able to make overpayments or take payment holidays then you may choose to re-mortgage in order to move to a lender with these options.
- To save money
- There are always great deals out there, so if your deal has come to an end then you can save money by moving to a new deal. This is especially the case if you are currently on the lender’s Standard Variable Rate.
What is re-mortgaging?
Re-mortgaging is the process of taking out a new mortgage to replace the one you have. By doing so, you are swapping the lender or deal that you have to get a better one.
There are plenty of reasons why you should consider re-mortgaging, such as to reduce your monthly payments, releasing equity, paying it off quicker, and adding more flexibility.
If you are on a fixed introductory tracker or a discounted mortgage rate, then it’s likely that you were put on the Standard Variable Rate (SVR) when it ended (or will be when it is due to end). It’s wise to think about re-mortgaging after this has ended as the SVR may be a lot more expensive than you were originally on.
Often, people tend to re-mortgage before the Bank of England are due to raise their rates as they can ‘lock-in’ a better rate – this last happened in 2018. By doing this, you are able to protect yourself against potential price increases in the future.
There are several reasons why you might decide to do this:
Reduce your payment term.
If you’re able to find a better mortgage deal than you are currently on, then you could pay off the entire mortgage quicker.
You would do this by taking the new deal but continuing to pay the same amount monthly as you already do – this will make it come to an end sooner, which could save you even more money in interest fees.
Release equity on your home
It’s also possible to release the equity in your home to increase your loan. This sounds complicated but once you understand it, it makes complete sense.
The equity in your home is the amount that you have paid for – this is your deposit plus any repayments you have made. If you’re on an interest-only mortgage, then you will not own more than your original deposit.
You release equity by re-mortgaging for a higher amount than you currently owe. By doing this, you’re receiving a cash lump sum from your equity.
You might choose to do this if you want to make home improvements or add an extension which will boost the value of the property. This could also be a method for consolidating any debt you have, as mortgages tend to have a lower interest rate. Make sure you have worked out the interest you will pay in both circumstances though, as you could end up paying more.
If your current mortgage is quite rigid and does not allow you to make overpayments or take a payment holiday, then you might want to re-mortgage in order to be able to do these things.
Circumstances change, so you may have originally thought you wouldn’t ever want to make overpayments when you originally took out the mortgage, but that might be different now. You could save money by making overpayments too!
One of the main reasons why you’d decide to re-mortgage is to save money in the long run or to reduce your monthly payments. This is especially necessary if you’re on the lender’s Standard Variable Rate.
What is the lender’s Standard Variable Rate (SVR)?
Every lender has a standard variable rate which they set themselves. They tend to go up and down, which will cause your mortgage repayments to do the same. The Standard Variable Rate is often influenced by, but not tied to, the Bank of England base rate.
If you’re on the lender’s Standard Variable Rate, then it’s possible that you aren’t on the cheapest deal as they don’t tend to be competitive. This means that you have the potential to save money and would benefit from re-mortgaging.
You don’t usually have to pay any early exit fees if you’re on the SVR, however, you should check this with your mortgage provider before moving forward.
Things to consider
There are several different things that you should consider if you should choose to re-mortgage.
Fees and charges do occur when you re-mortgage. These could include exit fees and early repayment charges. Both of these charges could be as high as 5%, but if you’re on an SVR because your deal ended then it’s likely that you don’t need to pay these. Make sure you check this with your mortgage provider.
It’s likely that you’ll need to have the property valued in order to re-mortgage. You will have to pay for this valuation.
You might also have to pay deeds release fees – these are the fees charged for releasing the deeds to your solicitor.
It’s worth noting that you shouldn’t be expected to pay any fees of you were not told about them when you took out the mortgage. Check through your paperwork to see, and if they try to charge you these fees ask them to remove them.
It’s worth starting around 3 months ahead of time. If you start before your deal ends then you can take out the mortgage the next working day after it ends to maximise your benefits. Before you start looking elsewhere, see if your current lender will give you a better rate than you’re currently on. You can give them a quick call to see if they’ll give you a new deal once you’re on the standard rate.
Consider what you are looking for
Have a think about the type of mortgage you are looking for. Do you want a fixed rate or variable mortgage? There are several different pros and cons for both of these.
Fixed-rate mortgages tend to be more expensive. Despite this, they’re good as the price you pay is locked in. If prices are expected to go up, then you are protected against this. You can be fixed from somewhere between 2 years to 10 years! The average rate of a fixed-rate mortgage is 2.7%.
The main problem with the fixed-rate mortgage is that if the prices go down, then you’re locked into paying the original rate. You’ll probably have to pay quite a high early exit fee if you try to leave before the deal ends as well.
Variable-rate mortgages are often cheaper as there’s more risk to them changing.
Often you are offered a rate like this for a set period, after which you’ll be moved automatically to the lender’s Standard Variable Rate. This will almost certainly be higher than you were originally paying.
There are two different types of Variable Rate:
Tracker mortgages track an indicator. This is usually the base rate. Tracks an indicator, usually the base rate. The rate changes as the base rate changes and is usually set in parallel to this. For example, it might be ‘Base Rate +2%’ As the base rate is currently 0.75% that would make your rate 2.75%.
A discount mortgage is usually a discount off the lender’s Standard Variable Rate. This tends to be a percentage off and will only last for two or three years. After this, your mortgage will likely revert automatically to the Standard Variable Rate.
You should always make sure that your credit report is looking good – if you haven’t looked at it since you last took out a mortgage then spend at least 6 months making sure everything is in order. You can do this by checking out your booster tips on Credibble.com.
Increase your equity to get a better rate
You may also want to increase the amount of equity you have on the property in order to get a better mortgage rate. If you’ve recently come into money, whether it’s from a bonus at work, inheritance, or a lottery win then you could reduce your mortgage costs by re-mortgaging for less than you currently owe.
Typically, you need at least 5% equity to get a mortgage deal. The deals get considerably better with 10%-20% equity, but the best ones tend to need at least 40% equity. If you have this kind of money lying around, then it can save you a great deal of money in the long run.
Re-mortgaging sounds like a confusing ordeal, but it can save you a great deal of money in the long run and can even reduce your overall payment term. Now you know the facts, you should do some research into the best offers out there and find out when your current deal ends.