A remortgage – taking out a new mortgage on a property you already ready own, either by switching to a new lender or a new mortgage rate with your current lender, can save you a lot of money.
When? It all comes down to timing the remortgage to when your initial fixed-term mortgage rate ends (the initial low-rate period) and avoiding the standard-variable rate (a typically higher rate) that kicks in after the fixed-term ends.
So read on and find out all you need to know about when you should leave your current mortgage deal, when you should stay and how to find your new best deal.
When should I think about remortgaging?
Preparation is key when it comes to getting yourself remortgage-ready. You need to leave enough time to weigh up the pros and cons of all the current offers on the market, and get all that pesky paperwork done and dusted so that your shiny new fixed rate deal is ready to roll the day your current one runs out.
Why is this so important? Because once your introductory fixed rate comes to an end (usually between two and five years), you’ll automatically be switched on to the lender’s much higher standard variable rate – and your monthly payments will almost certainly go up as a result.
You should ideally start looking into all your available options at least three months before your current fixed rate expires (you won’t have to switch lenders the second you’re approved: once you successfully apply, you’ll receive a remortgage offer with an expiry date attached).
However, don’t give up hope of homeowner happiness if you’ve already slipped onto your standard variable rate, you can still remortgage!
How long does remortgaging take?
Chances are, when you start eyeing up all the best-buy remortgage deals, you’ll want to jump ship from your current deal as soon as you can. However, the process can be slow if complications crop up along the way, such as a vital piece of missing paperwork.
You remember all that information you had to dig out for your original mortgage application? You’ll need to do much the same this time round, so it’s worth hunting down all the relevant documents such as payslips, utility bills, ID and bank statements (you can find a full list here) in plenty of time.
You’ll also need to be clued up on your current mortgage:
- Is it interest-only or repayment?
- Is it fixed or variable rate?
- How many years is the contract for?
You can find all of this out by checking your offer letter or asking your lender for a redemption statement.
The remortgage process can take as little as a month to complete, but applications will inevitably take a few weeks longer if you’re applying to switch lenders rather than simply moving to a new deal with your existing lender (officially known as a product transfer).
If you do decide to stay put to speed up the process, though, remember that you’ll have all the time in the world to count the cost if you were able to get a better deal by going elsewhere but didn’t.
The list below give you an idea of the timeline involved in finding and securing your remortgage deal:
- You get your property valued
- You submit your mortgage application
- Once your application is approved, you get a mortgage offer from the lender to confirm you’re ready to transfer your mortgage
Once that’s done, the solicitor handles the transfer of deeds from one lender to another
- At completion, a letter is sent through for you to sign
- You receive a letter from the new lender confirming that your mortgage has been transferred and your new mortgage payment will be taken based on your requested date and account details
Should I remortgage before my current deal ends?
Even if you’re still locked into a two-, three- or five-year fixed rate contract, you can get out early. It’ll cost you, though, and chances are you’re best off staying put for now as the penalties for switching will probably outweigh the benefits.
The early repayment charge (ERC) that accompanies most fixed-rate mortgages is a penalty fee that kicks in if you want to remortgage with a different lender while you’re still in the initial tie-in period – and it can make splitting up from your current lender a costly move.
Let’s say you have a remaining loan of £100,000 and the ERC in your contract is currently 4%. If you wanted to leave your lender right now, you’d be landed with an extra fee of £4,000.
On the flip side, ERCs are worked out on a sliding scale – it might be 5% in Year 1, but only 1% in Year 5 – so you need to do your sums very carefully to work out whether cutting your losses and switching early will be worth it in the long run.
Is remortgaging worth the effort?
100% yes! UK consumers are currently losing out on an estimated £29 billion annually by sticking with the same mortgage year on year, so remortgaging at the right time is a no-brainer.
Add in the event of the Bank of England raising interest rates in the future, you could end up paying thousands of pounds extra each year by staying loyal to your current lender.
According to analysis from estate agent Savills, a 1% rate rise would add around £10 billion to the UK’s mortgage bill, so it’s more important than ever for homeowners to get the best deal they can on their mortgage.
How do I find the best remortgage deal?
Remortgaging can be a great way to reduce your monthly payments, but when you’re choosing a new deal it’s essential to weigh up all the various costs involved rather than just the hot headline rate.
There are several potential fees to factor in – both for paying off your old loan and setting up your new one – and it’s important to know how much they’ll all cost and whether they’ll apply to you.
On top of any exit fees for splitting from your existing lender, you’ll also need to factor in the cost of conveyancing fees, valuation fees and arrangement fees for your remortgage (although many deals will pick up the tab for some of these).
You should also check the remortgage doesn’t have a sky-high standard variable rate (SVR) in case you have difficulty remortgaging again next time round.
Getting approved for mortgages is much tougher than it used to be, so it’s worth being aware of the potential extra costs involved once your new fixed rate deal runs out.
To get an accurate overview of the remortgage market, you need to use a mortgage calculator that produces a personalised estimate, which includes all the costs you’ll pay – rather than a basic estimate that only uses tempting teaser rates.
After entering details about yourself and your financial situation into the calculator, you’ll receive a reliable, whole-of-market picture of how much you can realistically expect to borrow, and from whom. And then you can work out whether remortgaging now is right for you.
Should I switch to a new lender or stay put?
The advantages of sticking with the same lender for your remortgage are that you’ll almost certainly make savings on fees and time – there’ll potentially be less paperwork to complete, fewer fees to pay and a much faster turnaround.
But just like staying with the same energy or insurance provider, fuss-free doesn’t necessarily equate to financially sound, and staying put may not be the best deal for you in the long term as you’ll only have access to a handful of deals from one lender.
As with anything, it’s important to do your research thoroughly and shop around for the best deal for you – which may end up being with your original lender or someone completely different.
By using a fee-free, online mortgage broker such as Habito, who scans every mortgage in the UK, do the legwork for you means you’ll not only save on money, time, stress and paperwork, but you’ll also have the whole of the remortgage market at your fingertips.