Are you struggling to keep up with your mortgage repayments? You’re not alone. As the largest financial commitment most of us will ever make, mortgages can certainly take their toll on our bank accounts. So, if you’re thinking of switching to find a better deal, you’re in luck. We spoke to Matt Stevens, the Director of mortgage broker The Mortgage Genie, to create this introductory guide to remortgaging your home.
Choosing a mortgage is a big decision for any property investor or homeowner as it will be a determining factor in whether you can afford the house or not. But, no matter how hard we try to find the best deals, sometimes it takes us a while to realise there are better ones out there that would suit our financial situation more.
Here, I will be discussing what you should know about remortgaging, so you can see if this is a sensible option for you.
What is remortgaging?
Just like it sounds, remortgaging is replacing your current mortgage deal with another product. You may choose to do this for a number of reasons, such as:
- Your current mortgage period has ended: Typically, many great mortgages offer fixed-rates for a short amount of time but, once this expires, the interest rate will revert to the lender’s standard variable rate (SVR), which is usually significantly higher.
- You want to save money: Remortgaging to a better deal can save you a good amount of money. But, be aware that there may be some fees incurred if you leave during your initial tie-in period — usually this is between 2–5% of your outstanding loan, as well as a smaller exit fee (all of these charges will be discussed below).
- Your home’s value has increased: If your home’s value has risen significantly since you bought it, you may have increased your loan-to-value ratio and be eligible for lower rates.
- You’re concerned about interest rate changes: Changes in interest rates can directly impact your monthly repayments, depending on the type of mortgage you have. This can take its toll on those who have non-fixed-rate mortgages as lenders will raise rates in line with the Bank of England base rate, so some may find more peace of mind by switching to a fixed rate mortgage.
How does remortgaging work?
Remortgaging can seem daunting and confusing, but the good news is that it is actually less complex than the mortgage process when you first bought your home. However, as your mortgage is still likely to be your biggest financial commitment, even after remortgaging, it’s crucial that you take the time to think through the switch.
The length of time remortgaging can take varies, but it tends to be shorter if you are staying with the same lender, rather than moving to a completely different one, which could take around two months. I would advise beginning the process around three months in advance if you have a set date you’d like your new mortgage to take effect from.
How much will remortgaging cost me?
Saving as much money as possible on your mortgage can grant you access to cash you had tied up in your home previously, so remortgaging is sometimes the smartest option for doing so. But, it’s necessary to understand the possible fees you can incur during the process. These could include:
- Early repayment fee: This is what you will be charged if you decide to leave your current mortgage during their initial tie-in period.
- Exit fee: This will be paid to your current lender when your mortgage comes to an end and covers the costs of them sending across all the necessary legal information to a solicitor.
- Arrangement fee: Your new lender will charge you an initial fee for taking a mortgage out with them. This can be paid upfront or added into your monthly repayments for your mortgage period.
- Valuation fee: It’s important that your new lender knows the value of your home so you may need to pay them a valuation fee.
- Booking fee: This fee will only apply to fixed-rate, tracker and discount mortgages and will be paid to the new lender when you apply for a mortgage with them.
- Conveyancing fee: This is paid to a solicitor in order for them to move the current lender’s interest over to the new one. This fee deals with the costs of legal work.
What do I need to consider?
Remortgaging may be a less complex process than getting a mortgage in the first place, but that doesn’t mean that there aren’t things to consider before making the switch. So, before you enter into a new financial commitment, you should think about the following:
- Will the exit fees be worth switching lender early? Those who are keen to save money as quickly as possible may see remortgaging as a guaranteed option. However, you need to be aware that the exit fees you pay can be large, so you need to be careful that these fees won’t outweigh your savings.
- How much will you have to pay in legal fees? As well as the aforementioned exit fees, you may also have to pay a solicitor to deal with the legal requirements of switching your mortgage, which could eat into a good chunk of your savings.
- Does your current lender offer you enough flexibility? The mortgage market is becoming increasingly competitive, which means that lenders are constantly trying to offer appealing features to get more people to buy their products. So, if you don’t feel you’re getting enough from your current mortgage, you may find it somewhere else.
- Do you still have a good credit rating? As you’ll already know from your first mortgage purchase, credit history is a big determining factor for lenders as they need to know you’re going to be reliable with your repayments. A new lender will have to carry out a credit check beforehand so, if your credit rating has worsened, it could end in this going on your record and being rejected for another mortgage.
Remortgaging can seem daunting, but it can be one of the best ways to cut down your monthly outgoings. Hopefully, this introductory guide has helped you but, as all mortgages and providers will be different, I’d advise checking the above points with each lender you consider.