Remortgaging is a standard practice that most homeowners experience. It’s most common when you come to the end of your initial introductory term, but you can also remortgage to borrow money against your property.
There are many reasons someone might choose to remortgage. You might be building an extension for your property or looking to buy a second home, either way, remortgaging can make these things more affordable.
Why you should remortgage
Remortgaging can save you thousands of pounds, especially if you’re about to come to the end of your current deal. In the same way you’d shop around for energy providers, shopping around for mortgage providers can save you a lot of money.
Depending on what you’ve agreed, your initial deal will expire after 1-5 years. You’ll then be put on a standard variable rate (SVR) mortgage which is very likely to be more expensive than your old deal. To give yourself a chance of finding the best rate, you should start looking for a new mortgage roughly 14 weeks before your deal ends.
If your deal has finished, you won’t be charged an early exit fee. However, if you’re still tied into a contract, depending on the terms, you will have to pay an exit fee which is a percentage of your outstanding debt and an admin fee. This is usually 2-5%, so if you still have £200,000 to pay back, your exit fee will be approximately £4,000 - £10,000 plus an admin fee. So depending on how much you save when you remortgage, it’s not always worth paying the exit fee.
Remortgaging can help you pay back your loan faster, especially if your current lender won’t let you overpay.
Remortgaging with a different lender is also a good way to borrow more money, especially if your current lender won’t budge. However, they’ll probably ask you what the money is for so be upfront and honest. They might follow up with proof that you’re using the money how you intended to, so if you’re getting an extension get all the builder’s quotes before you remortgage. Essentially, be honest and transparent and you won’t find yourself in trouble.
Why you shouldn’t remortgage
There are two sides to every coin, and with remortgaging there are some circumstances where you might be best waiting until your deal has run out.
For example, there’s no point paying thousands of pounds in exit fees if you’ve only got one year or a few months left on your deal. If you’re in this situation, weigh up why you need the extra money (if that’s the case) and decide if waiting is a feasible option. This is especially relevant if you want to remortgage just because your deal is coming to an end and don’t need to unlock extra cash.
If the value of your home has dropped, you could find yourself in negative equity. This means you might be in a situation where your debt is higher than your property is worth. This is an extreme situation though and often is the result of a stagnant economy or recession. If this happens, remortgaging won’t help and you could find yourself owing more money than you’ve borrowed.
If your employment or financial situation has changed since taking out your mortgage, you may want to reconsider remortgaging. Lenders base their mortgage valuation and decision on your current situation, so if you or your partner have become unemployed since receiving your initial mortgage offer, now is not the time to remortgage. Wait until you’re in a stable position to provide the bank with three months’ worth of payslips and then revaluate your situation.
Similarly, because of changing circumstances, your credit rating may have suffered. If that’s the case, spend time building it back up before applying for a remortgage.
How to remortgage
Working with a mortgage advisor will make this process easier and they might be able to access exclusive rates. They’ll also be able to provide you with expert advice, so if this is your first time remortgaging, it’s worth considering.
Before you take the step and apply, check your credit rating. With years of mortgage payments under your belt, it should be in a good position. However it never hurts to tie up loose ends and have your credit report pristine before making another large financial commitment.
By starting the process at least three months in advance, you will give yourself enough time to make arrangements and find a great deal. Once you’ve found a mortgage, you can specify the date to changeover to avoid early repayment fees. You can finish one mortgage on a Tuesday, and start your new one on a Wednesday!
The process of remortgaging is very similar to applying for a mortgage for the first time. To get the best rate, you should treat it just as seriously as last time. That means no credit commitments before you apply, spend sensibly and within your means in the weeks before application, and stay out of your overdraft too.
Your new lender might want to see a lot of the same paperwork you supplied the first time around. That can include
- Three months of bank statements
- Last three payslips
- Proof of address
- Proof of taxes paid
So now you know the process, what will you do?
If you’re looking to remortgage to release equity for a second property, get in touch with your local branch to see how our in-house mortgage experts can help.