Are you unhappy with the terms of your current mortgage?
Although mortgages will almost always be expensive, some deals are better than others.
Remortgaging is a viable option for anyone wanting to switch to a new deal.
But what exactly does remortgaging mean? And how does it work? Keep reading to find out.
What does remortgage mean?
To remortgage (/remortgaging) means that you have moved from one mortgage deal to another while continuing to live in the same house.
This is typically done to save on your monthly payments. Different banks offer various mortgage deals, which allows you to shop for better terms.
There may be costs involved with remortgaging, which can impact any savings you make on the monthly payments.
For example, you may need to pay a conveyancer to handle all legal steps surrounding the deal. Your existing mortgage provider typically has Early Repayment Charges, too.
Some mortgage experts advise only remortgaging towards the end of your current term when the fee will be minimal or non-existent. This helps you to avoid early repayment charges.
How does remortgaging work?
The first stage of remortgaging is to get an Agreement in Principle (AiP) for a new mortgage. This is the initial step for securing a mortgage.
You can complete this online, and it confirms what a bank would lend you without completing a full credit check.
Once you receive your AiP, your attention should turn to the costs of the transition. You will usually have to pay the following:
- Application Fee (to apply for the new mortgage)
- Valuation Fee (to value your house)
- Solicitor’s Fee (for all paperwork to be completed)
As mentioned above, there could be an Early Repayment Charge from your existing lender, too.
Once you have done all of the above, you can then officially apply for your remortgage by signing the relevant paperwork.
This will involve background credit checks, so make sure you have documents to prove your income and the details of your previous mortgage.
Lastly, your solicitor will handle the transfer of your mortgage, and you will then have completed the entire process. From that moment onwards, your monthly mortgage payments should change.
Speak to a conveyancer or solicitor for more support with the specific remortgaging process.
What is porting a mortgage?
Porting a mortgage means transferring your existing mortgage deal to a new property.
This is differerent from remortgaging because the deal does not change with porting, but the house itself does.
You may port your mortgage if you are pleased with the current terms. However, your lender may not allow you to do so.
For example, if your circumstances have changed, such as recently becoming self-employed, the lender may reject your application.
If the value of your old house has significantly increased compared to your new one, the lender might also refuse to let you borrow more money.
Lastly, some lenders are reluctant to lend on certain types of property, and your new house may, therefore, not be applicable.
Are there different types of remortgages?
The actual process of remortgaging is the same for almost all banks, but the product has a few variations.
For example, you can remortgage to release equity from your home or to remove a person’s name from the mortgage.
You can also get a buy-to-let remortgage on a house you are letting out (these have some significant differences to residential mortgages).
For more guidance on all the different types of remortgaging, speak to a mortgage or financial expert.
Why do people remortgage?
There are several advantages to remortgaging that cause people to do it.
The most common reason is for financial benefits.
For example, if remortgaging means that your monthly repayments go down, this is worth considering.
As mentioned above, there are other reasons to remortgage. One typical example is when one of the previous names on the mortgage is removed – such as when a married couple divorces.
People tend to remortgage when their current deal ends, as they no longer worry about Early Repayment Charges.
Many banks offer incentives for new customers to join them. So, you sometimes get better deals elsewhere than continuing with your existing bank.
Another reason to remortgage is if you want to shorten your repayment term.
This might be because you recently had a pay rise and want to pay off more of your mortgage quicker (so that less interest is paid).
Lastly, if your home’s value has increased by a lot since you took out your mortgage, your loan-to-value ratio should have improved. This means you may be offered a lower rate.
Drawbacks of remortgaging
It is recommended that you speak to an expert for guidance before taking out a remortgage because there are also downsides to it.
As outlined above, fees can cost you several hundred pounds (or more, depending on the circumstances).
It may take you a while to recoup this cost through your reduced mortgage payments. So, if your goal is to improve your financial position in the short term, it might not help.
The remortgaging process can sometimes take a few months, so you must be committed – and patient – to seeing it through.
Many people remortgage to increase the repayment period of their overall mortgage.
However, even though this can reduce your monthly payments, it can increase your overall cost in the long term.
This is because more interest will be paid over the entire period, and it will take you longer to build even more equity in the house.
How long does remortgaging take?
In most cases, remortgaging your property can take four to eight weeks.
Just like when applying for a mortgage on the first occasion, you’ll need to:
- Complete affordability checks
- Provide financial statements
- Provide proof of identity
This four-to-eight-week timeframe does not factor in any time that you spend researching the different offers.
Many banks are operating throughout the UK, so weighing up all your options may take another few weeks (at least).
Therefore, you should investigate remortgaging at least a few months before your current deal expires. This helps align the timing of the process.
Can you remortgage early?
Ultimately, this depends on where you are in terms of your original mortgage agreement.
You will almost certainly be charged an early repayment fee if it is still in its initial discount period. This can be a significant sum and may mean remortgaging is not worthwhile.
As part of your research, you should look at your current mortgage, not just new ones.
For example, you should find out:
- How much does it currently cost?
- How long does the initial discount last?
- What the early repayment charge might be?
If you consider remortgaging to borrow more money or consolidate debt, a house sale may also be worth your consideration. Speak to a qualified expert for more guidance tailored to your situation.
