Remortgaging means switching your current mortgage deal to another mortgage deal. This can either be with your existing lender or a different one.
People tend to remortgage when the fixed term on their current mortgage deal comes to an end. And if you don’t switch to another fixed-term deal, there’s a strong chance your lender will shuffle you over to their standard variable rate (SVR), and that often means paying up to double the interest rate that you were paying before. Not great.
Here we explain how remortgaging works and why you might want to do it.
How remortgaging works
Some people hear “remortgage” and immediately think “more debt.” And while it’s true that you can remortgage to release equity in your property (meaning, borrow more and pocket the extra cash for home improvements), for most, it’s about saving money on monthly payments.
In that respect, it’s actually a bit like shopping around for a better broadband deal or a new mobile phone contract.
Gotcha. So, how does remortgaging work?
Usually, remortgaging is a fairly straightforward process. Finding and applying for a new mortgage is the easy part, but exactly how the rest of your remortgaging works depends on whether you stay with your current lender or switch to a new one.
To be on the safe side, we always recommend giving yourself around 6 months before your fixed rate period ends to get it sorted.
Now, to stick or switch?...
- Sticking with your existing lender: Transferring from one mortgage deal to another with the same lender is usually pretty straightforward. Your existing lender knows everything they need to know about you and your property, and it won’t involve any extra legal work or fees. You’re simply moved onto the new deal by your lender on the fixed-term start date, and you start paying your new monthly fee. Easy.
- Switching to a new lender: If you’re planning on switching to a new lender, that’s when things get slightly trickier. Just like the first time you got a mortgage, you’ll need to pull together up-to-date personal and financial info, proof of earnings, documents related to outstanding loans, the lot. Here’s everything you’ll need.
Your new lender will then check your credit history to confirm everything before arranging a property valuation. You might need to hire a conveyancing solicitor to handle the paperwork related to this, although lots of remortgage deals come pre-packaged with free valuation and legal work. Note: check out Habito Plus for this kind of deal.
Once you’ve signed the paperwork, your new mortgage provider will pay off your old mortgage, and you’ll start making your new monthly repayments. The whole process can take around 4-8 weeks, but if you’re saving money, it’ll all be worth it in the end.
A broker (like Habito) will help you figure out what the best deal is, and whether you should stay or switch to a new lender.
Why should you remortgage?
While most people remortgage to switch their mortgage deal and save money, there are a whole bunch of other compelling reasons for switching products or lenders:
- You might want to take advantage of lower interest rates, meaning you’ll be paying less interest on your mortgage moving forward.
- Maybe you want to switch from an interest-only mortgage to a fixed rate repayment mortgage. Interest-only mortgages are where you pay off the interest, but not the loan. With a fixed rate repayment mortgage, you pay interest and the loan, and the interest rate remains the same throughout the term (versus a variable rate mortgage, where the interest rate can change).
Note: This is where loan-to-value (LTV) comes into play. LTV is the size of your mortgage compared to your property’s value. If your home is worth £200k and your outstanding mortgage is £150k, your LTV is 75%. The lower your LTV, the wider your choice of deals.
- You might want a more flexible mortgage deal that allows you to make overpayments (additional payments above your monthly mortgage payment) without penalties as you chase that sweet mortgage-free life.
- Or you might want to unlock the equity in your property, meaning you benefit from the increased value of your home by releasing cash and taking on a new loan.
Unlocking equity: how remortgaging can release extra cash:
When you first took out a mortgage, it was based on the value of your property at the time. If the value has gone up since then, that means you own more equity in your home. This is the money you’d get if you sold the property and cleared all of the liabilities linked to it.
Selling is one way to release cash in a property, but you can also unlock this equity by remortgaging, borrowing against the increased property value, and pocketing the difference. This results in larger monthly repayments, but it gives you access to money previously tied up in your property — money you could use to pay off expensive debt or fit a fancy new kitchen.
Numbers: If your home is worth £400k and you have a mortgage of £250k – that makes your equity £150k. If the value goes up to £450k, your equity is then £200k. If you increase your mortgage against that, e.g. £300k, you borrow £50k that you can use for whatever you need.
Obviously, you can’t remortgage to release equity if your property has fallen in value. But if the value has stayed the same, you could also remortgage to get back the money you’ve paid in.
Don’t remortgage on a whim — think it over
Okay, so remortgaging isn’t quite as scary as skydiving or bungee jumping, but it’s not buying new socks, either. There are a few scenarios where remortgaging really doesn’t make sense. So, before you go ahead and remortgage, ask yourself:
1. Is your credit score in good shape?
Embarking on a remortgage with a lousy credit score can impact your chances of getting a good deal (or any deal at all, for that matter). Lenders want to have faith that you can be trusted to make repayments before they loan you a stack of money, so check your current status with the usual agencies: Experian, Equifax, and TransUnion.
If you can fix any mistakes before applying, you’ll stand a far better chance of success. Here are some tips for how to improve your credit score.
2. Has your employment status changed?
If you’ve recently changed your job you might not fit the profile for a new mortgage, even if you’re earning more than before. This is because lenders tend to view change as risk, and they know that any new job can often come with probationary periods.
Meanwhile, if you’ve gone self-employed, you may have to hang fire until you have at least a year’s worth of accounts to prove your income. Some lenders will want up to three years.
3. What, if anything, will it cost you to leave your existing lender?
Some lenders will charge you a pretty penny for leaving. It’s a good idea to check the fine print and get a handle on any potential exit fees or early repayment charges — especially if your main reason for switching is to save money in the long run!
For most people, their mortgage is the single biggest outgoing each month. If your goal is to lower your monthly costs, you have to be certain that remortgaging will make this happen.
When you remortgage with Habito, your friendly mortgage expert will help you figure out whether it’s cheaper for you to switch (and pay for legal work, exit fees, and other costs) or stay put with the same lender on a different mortgage deal.
Is remortgaging worth it?
100%. Especially if you’re about to fall onto your lender’s standard variable rate, you could save a lot of money by remortgaging to a better deal. The difference can be frankly staggering.
Don’t believe us? We’ve crunched the numbers. On average, we save people about £341 a month when we switch their mortgage. That’s no joke.
Try our handy remortgage calculator to see how much you could save.