Remortgaging is where you switch the mortgage on your current home to another lender or to a different mortgage rate. It basically means replacing your current mortgage with a new one. So, if you’re happy in your current home but want to move to a new mortgage deal, then remortgaging is something you should consider.
Is remortgaging right for you?
There are many different reasons why you might decide to remortgage and when is the best time. Here is a list of the most common reasons:
You want to take advantage of low interest rates. If interest rates are particularly low, then there could be an opportunity for you to save money by remortgaging. Be careful. If your mortgage isn’t coming towards the end of its term, you might have to pay an exit fee.
You want to move from interest-only to a repayment deal. You’ve decided you want to pay more than just the interest on your mortgage and switch to a repayment plan, whereby you’re also chipping away at your mortgage debt with every monthly payment.
Your fixed deal is up for renewal. You might’ve taken out a fixed rate mortgage, where you make the same repayments every month and the interest rate stays the same. This would be a great time to remortgage and start shopping around for a better mortgage deal, instead of defaulting to an SVR.
You want to make overpayments. Your personal situation might have changed over time, so you are now able to spend a bit more on your mortgage payments. If your current lender doesn’t allow this, you might want to look at changing over to a new mortgage with a lender who will.
You’d like to borrow more money. You might want to remortgage and release some cash that you’ve built up in your home to fund an extension or a renovation project. In many cases, remortgaging can be a cost-effective way to borrow the additional money you need.
If you're looking to fund an extension or borrow for a large-scale renovation, you can use our loan calculator to explore your options.
When should you avoid remortgaging?
There are many times that we would advise against remortgaging, and here are some of the top reasons:
You’re already on a low rate
It might be the case that you’re already on a low rate and you don’t need to move to another one. Perhaps at that moment in time, there is no better rate than the one you’re on.
You might face large early repayment charges
If you pulled out of your current mortgage deal before the term is up, it could well come with a substantial early repayment charge, which might make you think twice about switching. It is always worth talking to a mortgage adviser, who will be able to help you weigh up the exit fee against the saving you could save by switching.
You have little equity in your home
If you owe your lender more than the property is worth, then you’re in what they call ‘negative equity’. It can be difficult to remortgage your house when you’re in negative equity - unless you have separate funds to repay the difference.
However, everyone’s circumstances are different, just like every lender’s criteria is different, so it’s always worth speaking with a mortgage adviser to consider all your options.
Your finances have dropped
Lenders now have to see evidence of your income against your outgoings and carry out thorough credit checks. So, if your income has dropped since you last took out your last mortgage, the lender might be more cautious about lending you the money.
When is the best time to remortgage?
You can remortgage at any time, however, it may not always be the right time. You may want to consider:
- When your current fixed rate mortgage deal ends
- When you can save money by remortgaging, even after paying arrangement and exit fees
- When you own enough equity in your current property
There is no one size fits all, so the best thing you can do is to talk to a mortgage adviser, and they will be able to help you find the best time for you.
How to prepare for remortgaging and increase your chance of mortgage acceptance?
First things first; you will need to find out how much is left to pay on your current mortgage (a mortgage adviser or your lender should be able to tell you). Once you know that, you will know exactly how much you can remortgage for.
You will also need to consider when would be the best time for you to remortgage. Again, your mortgage adviser will be able to tell you if the exit fee of your current mortgage would be more than what you will save by remortgaging.
Ideally, you should start looking around for a new deal around six months before the end date of your current mortgage.
A mortgage advisor can step in to help you explore your mortgage options, such as the team here at Resi Finance.
You can also get your finances in order before applying for a remortgage by doing a few simple things:
- Check your credit score
- Don’t apply for any new credit
- Avoid spending large amounts of money
- Don’t go into your overdraft anymore than you are (if you are)
Lenders will want to see that you’re good with your finances and can still pay them back every month.
If you decide to remortgage, then you’ll need to provide the same information that you did when you applied for your first mortgage. It really is worth preparing everything you might need in advance, to make sure there aren’t any hold-ups.
There are different pieces of information you will need to provide depending on your employment situation.
If you’re remortgaging and you’re employed, then you’ll need:
- Your last three months’ personal bank statements
- Your last three months’ payslips
- Your most recent P60
- Proof of any benefits you receive, for example Child Tax Credits or any child support or spousal support from an ex-partner
- One utility bill with your current address (not your mobile phone bill)
- Passport or your driving licence
If you’re remortgaging and you’re self-employed, the paperwork you’ll need to provide is slightly different:
- Your last three months’ personal bank statements
- If you own a limited company, then you’ll need to supply proof of income. Your mortgage adviser will be able to tell you which specific documents you need, based on your individual circumstances
- Your last three months’ business bank statements from all your business bank accounts (not all lenders ask for this, but best to have them as it’s possible that your mortgage adviser may still need to see these as evidence of your income)
- Your Tax Year Overview for the past three years and your last three SA302’s
- Proof of any benefits you receive, for example Child Tax Credits or any child support or spousal support from an ex-partner
- Two utility bills with your current address (not your mobile phone bill)
- Passport or your driving licence
What are the barriers to remortgaging?
The most common barrier to remortgaging tends to be the high exit fees when trying to leave your current mortgage before the end of its term.
Having bad credit may also prevent you from being able to remortgage. This is because most lenders require applicants to have good credit when switching mortgages.
However, if you’re approved for a new mortgage, you can switch to a better rate. This can boost your finances by saving you money each month and helping your credit score.
Many homeowners use a remortgage to fund an extension or other renovation project, such as this property in London.
As you already have a mortgage, lenders can assess whether you’ve been repaying your mortgage on time. This will help to show your new lender that you are able to keep up with the monthly repayments. On the other hand, if you have made late payments, it can make a remortgage difficult.
Out mortgage advisers will be able to help guide you in the right direction, no matter what your credit situation.
What are remortgage costs and fees?
The costs involved in remortgaging depends on your individual circumstances, but there are a few possible costs that you should look out for:
- Early repayment charge to your existing lender
- An exit fee to your existing lender
- Possible mortgage fees to your new lender
- Possible fees including valuations, conveyancing and mortgage
- Potential mortgage adviser fee
Any other questions about remortgaging?
There are a lot of different things to consider when thinking about remortgaging and talking to a mortgage adviser is the best way of getting answers. They understand the market better than anybody else, and they especially know what criteria lenders are looking for. Their knowledge and access to thousands of different mortgage deals will save you the hassle and time when trying to find one yourself.
A mortgage adviser can also help you choose what type of mortgage might be the best one for you (fixed, SRV, interest-only, etc.). They will be able to help you prepare for your mortgage application, guide you on what possible fees there maybe, talk to you about your options and what protection policies are available. Essentially, they are there to help you get the right mortgage for you.
Learn more about Resi's remortgage service here.
