If you want to know how to remortgage your house, for whatever reason, and what the benefits and pitfalls of doing so might be, then this article will help.
Usually, most homeowners will be considering what their mortgage options are when:
- Their initial tracker or fixed mortgage deal is coming to an end and they need a new mortgage;
- Want to exploit the equity in their property;
- Simply remortgaging to enjoy a better deal with a new lender or their current provider.
But why should homeowners take this step? The simple answer is that their current loan may be moved across to the lender’s standard rate, also known as the SVR, when it ends which could see a big leap in monthly payments.
However, by acting quickly and finding a new mortgage deal, you will be reassured that your payments should be lower with a new fixed term.
The bottom line is that when someone remortgages their house, they are not moving house and the new mortgage will still be secured against their property.
How does remortgaging work?
Firstly, the competition for those looking to remortgage with a new product is very competitive.
However, there’s no hiding from the fact that the more equity you have in your home, then the lower your potential loan-to-value (LTV) will be. That’s the amount you are borrowing as a proportion of your home’s value, which then unlocks more competitive rates that you will be qualified to enjoy.
It’s also important to appreciate that remortgaging is not just an exercise to secure a new, lower rate as you can remortgage for more to release cash which can be used for other purposes as mentioned earlier.
There’s also a need to remortgage to help deliver stability in case you are worried against potential future interest rate rises and want to protect yourself from them. By locking into a fixed term with low interest rates means you will continue enjoying low payments.
Why do people remortgage their home?
There are a lot of reasons as to why people will remortgage their home. We have mentioned some of them already, but others will also be looking to access cash to:
- Help pay for home improvements;
- Look to debt consolidation;
- Unlock money to help invest in a business;
- To buy a second home;
- Take up an investment property opportunity.
When you should consider your remortgaging options
If you want to remortgage to access the equity or the profit in your house, then you may be wondering when is the best time to do so.
You could look at remortgaging options at any point and if a lender does make an offer, then you should check how long this offer will be valid for.
Usually, a remortgaging offer being made by a lender will be open for between three and six months. You will also need to find out if there are any early repayment charges to meet too.
If you used a broker to find your current mortgage provider, you may find that they will get in touch six months before the current tracker or fixed rate deal comes to an end and they will flag up potential remortgaging opportunities.
However, if you’ve been moved onto the lender’s SVR, then it’s important that you review all of your potential remortgaging options as soon as possible.
That’s because you are probably paying a lot more than you should be doing every month for your mortgage and by securing a new lower rate you could make a substantial saving.
What fees are there when you remortgage?
Unless you are remortgaging with the same lender, then you be facing fees when you remortgage with a different lender.
There will be a need for a conveyancer or solicitor, though there are lenders offering fee-free deals to help you sign up with one of their remortgaging products. Otherwise, you’ll be paying:
- Valuation fees;
- Legal fees;
- Administration costs.
It’s also worth bearing in mind that when you pay the valuation fees that the lender may have used someone who was simply checking the exterior of the property from the street.
This may then mean their valuation is too low and you could be losing out on a better rate as a consequence. This is where the loan to value ratio is really important so you access the cheaper, better deals.
If you do dispute the valuation, then you need to provide evidence of similar properties in your area and what they sold for, and then highlight the cost of any home improvements that you have carried out.
What happens after you decide to remortgage?
You can either find a reputable broker to search the mortgage market place to find a great deal for you, or you could spend the time doing this for yourself.
Once a mortgage offer has been made by a lender, or should you need to move between lenders, then a solicitor will need to be appointed to carry out the legal paperwork.
This process will see a deed being signed and then sent to your new provider and it’s they who will pay off your current mortgage by sending your current lender the necessary funds.
And once the mortgage has been fully repaid, you will then begin making repayments to your new lender.
I own my house outright, can I remortgage?
If you own your house outright, then you can remortgage and use the money for just about any purpose.
Whether that means enjoying the equity you’ve built up to buy a second home, for example, buying a weekend getaway at the seaside or a place near family members, then remortgaging may be the way to do it.
By remortgaging your current home, you avoid having to take out a second mortgage on buying a new property.
Obviously, there’s a great way to calculate how much equity you have if you own the house outright and that’s the simple formula that the total value of your property is your total amount of equity.
Usually, if you have a mortgage, then the property’s value minus what remains of the mortgage debt leaves you with the equity amount.
It’s always advisable when searching the remortgaging market to look beyond headline rates and also take into account:
- Valuation costs;
- Arrangement fees;
- Legal fees.
Plus there will be other expenses, but there are lots of specialist and mainstream lenders interested in offering a mortgage on a property that someone owns outright.
For older borrowers, there’s also the potential of accessing an interest-only retirement mortgage to help release some of the property’s equity. The loan will see a mortgage holder repaying interest until they die or they go into long-term care, which will be the point that their house is sold and the loan repaid.
Remortgaging to release equity
We have mentioned already, how easy it is for those who want to remortgage a property they own outright but it’s also possible to remortgage to release equity.
Again, the competition for equity release mortgages is very strong and it’s worth shopping around to find the best deal – especially if you are looking at downsizing from your current home.
Indeed, speaking with a mortgage broker who understands this part of the market may well pay dividends since they have the experience to steer you towards the right deal.
It’s also important to appreciate that your income and age will also be crucial factors in accessing equity because you will need to show the lender that you can afford the interest payments over the foreseeable future. This is particularly crucial if you are moving into retirement when your income will most likely fall.
There are various financial products available, including the equity release lifetime mortgage, with some lenders not charging interest but instead rolling this up and adding it to the money that is borrowed and the interest is repaid when the property is sold.
Remortgage with same lender
There’s one really big advantage should you decide to remortgage with the same lender – and that is money.
Put simply, when you remortgage and are moving to a new deal or rate with your current lender, then this is viewed as being a ‘product transfer’.
The benefit of this is that there’s no additional legal work necessary, so you will have saved yourself legal fees.
If you remortgage with a different lender, you will need a solicitor or a conveyancer and they will help with the remortgage application process – much like they did when you first applied for a mortgage with your current lender.
The downsides when you remortgage with the same lender is that they may not have a wide range of competitive financial products and there could be better and cheaper deals available elsewhere.
Our quick tips for those who want to remortgage
There’s a lot to consider when you need to look at remortgaging deals, so you should research your options carefully and a previous Property Road article looked at the issue of finding reputable mortgage advice to help you in this process. Indeed, this is an important aspect when it comes to remortgaging.
Our quick tips also include:
- Do your research by visiting various websites to compare remortgaging products;
- Check at least one mortgage comparison website so you don’t receive the same results from one site;
- Research the potential new lender to ensure they have a good reputation;
- Calculate what your switching costs will be to ensure it is worth moving products;
- Check whether there is an early repayment charge to be paid should you move before the deal ends.
Finally, when most people take out a new mortgage, they normally get a special introductory deal. This means that they have been offered a discounted or low fixed rate, or a low tracker rate, that will run for the first few years of their mortgage.
These deals will run, usually, for between two or five years but once they end you will be moved onto higher rates and this is the point at which you should look at other, better and cheaper deals.
There’s a lot to recommend switching lenders when you remortgage your house because they tend to offer new customers better deals but the most important tip of all is to seek expert financial or mortgage broking advice before moving mortgage products to avoid what could become a costly mistake.