Be aware of the risks of remortgages as shown here before considering signing up for one.
Compare the Top Remortgage Deals
Remortgaging can be a confusing time. Save yourself the stress and check out our hot picks of the most competitive deals at the moment.
Lowest Fixed Rate Remortgage Deal – Yorkshire Building Society
2 Year Discounted Yorkshire Building Society £774.75 for 24 months 1.23% until 30/09/2020 £1,472 fees 4.5% overall cost
Representative example
Repayment mortgage of £200,000 with 300 monthly repayments. At end of initial period mortgage reverts to Standard Variable Rate (currently 4.99%, costing £1,135.29 p/m) for 276 months. Total amount payable £333,406: Interest (£131,934); Application fee (£995); Valuation fee (£270); Legal fee (£117); Mortgage discharge fee (£90); Fees are assumed to be paid up front and not included in the amount borrowed. Costs based on assumed completion date of 30/09/2018.
Lowest fees remortgage deals 2 Year Fixed Accord £841.88 for 24 months 1.94% until 31/10/2020 £90 fees 4.5% overall cost
Representative example
Repayment mortgage of £200,000 with 300 monthly repayments. At end of initial period mortgage reverts to Standard Variable Rate (currently 4.99%, costing £1,142.35 p/m) for 276 months. Total amount payable £335,583: Interest (£135,493); Mortgage discharge fee (£90); Fees are assumed to be paid up front and not included in the amount borrowed. Costs based on assumed completion date of 31/10/2018.
Lowest variable rate remortgage – Hanley Building Society
Lowest variable rate deals – The Hanley Economic Building Society
£833.18 for 300 months 1.85% (variable) £1,490 fees 1.9% overall cost Representative example
Repayment mortgage of £200,000 with 300 monthly repayments. Total amount payable £251,444: Interest (£49,954); Booking fee (£250); Application fee (£700); Valuation fee (£290); Legal fee (£120); Funds transfer fee (£35); Mortgage discharge fee (£95); Fees are assumed to be paid up front and not included in the amount borrowed. Costs based on assumed completion date of .
When you still owe money on your mortgage, and you get another mortgage to pay that one off, you are ‘remortgaging.’ The new mortgage might be with the same lender, or with a different one. In either case, the old mortgage is paid off and settled, and a new one takes its place.
Why remortgage?
People most often remortgage in order to get better rates, or to extend the period for their current rates. Sometimes people remortgage because they’ve built up some equity in the property, and want to free it up. In that case, it’s kind of like borrowing to buy your own house. You get a new mortgage for £200,000, but you only owe £140,000 on your existing mortgage, so the bank pays you out the £60,000 difference (minus fees of course). This money can be used for whatever you want: remodelling, paying for your children’s tuition, or buying a boat. It’s yours with no strings attached.
If you are paying an interest-only mortgage (for a Buy-To-Let property, for example), you may want to start paying on the principle as well. In most cases, you don’t have to remortgage for this – your bank should be happy to let you start paying down the principle.
How could you save money by remortgaging?
For example, imagine you signed up for a mortgage with a good introductory rate, or a fixed rate, for the first two years. The two years are almost over, and the Bank of England has lowered their interest rates. Banks generally follow suit, so there are good deals to be had on mortgages. In addition to this, you’ve managed to increase your credit rating over the past two years, and you’ve paid off your car loan. As a customer, you look better. Add to that the past two years of no-problem mortgage payments, and the bank is almost sure to offer you something better than you had – if you ask for it.
As another example, let’s say the Bank of England rates have gone up, but you’ve still managed to increase your credit rating and decrease your outgoing expenses – you probably earn a little more now too. It might be possible to lock into another two years at your current, fixed rate, thereby extending the period of time over which you have stability of costs, and regular payments that are sure to fit your budget.
If you don’t want a fixed mortgage, but would rather follow the economic trends, then there are ‘tracker deals’ that do just that. The lender would charge a base rate (equal to what the Bank of England interest rate is) plus a set amount, like 2%. If the base rate is 1%, your rate would be 3%; if the bank of England drops it to 0.5%, then yours drops to 2.5%. This saves you money as long as rates are low, but can increase your costs as rates rise as well, so go into this with your eyes open and understand the risks.
Initial mortgage deal is ending?
If your initial mortgage deal is ending, and you aren’t facing stiff fees for paying off your mortgage early, then it might be a good idea to shop around for the best deal. That might be with your current lender, or a different one.
Your current deal will probably revert to a standard variable rate after the initial period is over, and this is almost always higher than the initial rate was. If you’ve paid your mortgage and other debts regularly, though, and your credit rating is as good or better than it was when you applied for your first mortgage, you probably have some better options. Taking advantage of them could save you hundreds, or even thousands of pounds each year.
Who is remortgaging suitable for then?
Remortgaging is suitable for anyone who has some equity built up in the property, has maintained the same or better credit rating and financial situation as when the mortgage was first approved, and if your deal doesn’t include substantial fees for paying off the current mortgage early – these fees may negate any benefit gained from lower rates.
You should also consider any fees attached to a new mortgage.
If you are in a position to pay off a substantial portion of your mortgage, then you are likely to get a better rate. Banks consider the loan-to-value ratio – that is, the amount you want to borrow as compared to the value of the property. If the amount you want to borrow is only half of the value of the property, for example, the bank will give you a better deal, because it’s risk of loss is much lower.
Who is remortgaging not suitable for?
If your credit rating has dipped, or you have incurred more expenses or suffered a decrease in income since first getting your mortgage, you probably won’t get a better deal than you have. Missing or late mortgage payments will also cause concern to your lender, and they will not be keen to decrease their profit until they see a reduction in their risk.
Even if your credit rating and financial situation are in good shape, the fees involved with paying off a mortgage early, or in applying for a new one, may negate the benefits of remortgaging, or might even result in a higher cost.
Fees for early repayment may be a whopping 2-5% of your total outstanding loan! We might think that banks are happy when we pay off loans early, but that isn’t usually the case. Banks make a lot of their money through collecting interest over time. The more time the money is loaned out for, the more interest they collect. Banks factor in the risk involved in lending the money, and how much they can make from collecting interest for the period of the loan. Contracts often include a fee for paying off the loan early, to cover the loss of interest collected.
Sometimes it works out cheaper over the course of several years, but be sure to calculate the initial costs, as that first year could be more expensive, even with a better overall deal.
When deciding whether or not to remortgage, it is a good idea to talk to an independent mortgage broker. These brokers don’t work for any lenders in particular, but they research and compare several deals, and are knowledgeable enough to tell you if one of the deals is a better one for your current situation. If it seems that one is, the application process can begin, and works much the same as when you first applied for a mortgage.
It is recommended that you start the search for a new mortgage four to five months before you want the new mortgage to take effect.
Finally, don’t remortgage if your remaining debt is small (say, less than £50,000). The fees incurred in securing the new mortgage will negate any benefit you might have from better rates, and fluctuating interest rates will have little real impact on the payments, as they are percentages of a smaller amount. Better to stick with it if this is your situation.
Types of remortgage deals available
Mortgages come with a variety of features, and fit into a few main categories (sometimes a mortgage will include a combination of these).
Fixed Rate Mortgages
Fixed rate mortgages lock you into an interest rate that doesn’t change. If the Bank of England changes their interest rate, lenders generally change their rates in response. The Bank of England rate rises by 0.5%, and the banks raise their rates by the same amount. Same thing for a reduction in the rates.
A fixed rate mortgage does not follow the ups and downs of bank of England rate changes. Instead, lenders charge a slightly higher amount, and guarantee that it will not change for a certain period of time. If the main rate drops, you won’t get any benefit from the lower rates – but if the main rate increases, your interest rate won’t increase, either.
The main benefit of this is the security that the payments won’t change during that time period. Budgeting for mortgage payments is predictable and regular. For most people, this is a real benefit.
Variable Rate Mortgages
Variable rate mortgages are the counterpart of fixed rate mortgages. A variable rate mortgage is not static, and your payments can therefore change over the course of your mortgage period. Capped rate mortgages, discounted mortgages, and tracker mortgages, are all types of variable mortgages.
Capped Rate Mortgages
This is designed to allow some degree of variation to occur, but not too much. It will be more expensive than the variable rate mortgage (at least initially), but cheaper than a fixed rate. It would allow you to reap the benefits of a lower basic rate, should one occur, but will limit how high your rates can go if the basic rate climbs. Your rates can go up, but only to a set point, or ‘cap.’
Discounted Mortgages
Sometimes a lender will offer a discounted mortgage rate. This means that, rather than adding on their normal amount to the base rate, they would add on a lower one. In the example above, we assumed a Bank of England rate of 0.5% and a lender rate of 2%, for a total of 2.5%. A discounted mortgage might add only 1.5% onto the base rate, for a total of 2%.
This is usually a variable rate setup though, so the actual cost of your mortgage would still fluctuate as the Bank of England changes its rates. Be sure to take these possibilities into account.
Tracker Mortgages
A tracker mortgage variable rate mortgage that is set to a certain amount above the Bank of England rate. If, for example, the Bank of England rate is set at 0.5%, a lender might offer this rate plus 2%. You would therefore pay 2.5%.
If the basic rate drops to 0.3%, your rate drops to 2.3% and your payment drop. Great news for you! Be careful though, if the rates climb to 0.7%, yours would go up to 2.7% and your payments would rise as well.
If you want to take advantage of the low interest periods, you should make sure you can handle any high interest periods that might occur.
Offset Mortgages
Offset mortgages consider your savings as if they had been applied to pay off your debt. This reduces the amount of interest you pay, which increases the proportion of your payments that is applied to the principle. For example, if you have £20,000 in savings, and a mortgage of £100,000, the bank would charge you interest on your mortgage as if you only owed £80,000 – provided that your savings are held by that bank. Your monthly payment would cover the interest on the lower amount, and apply the (now-larger) remainder to the principle.
Rates for this kind of mortgage are higher than for standard deals, but if you have substantial savings, the net result might be in your favour.
Which kind of remortgage deal should I choose?
The kind of mortgage you choose depends on your financial situation, your tolerance for risk, and what the lender is willing to offer. Most home buyers opt for a low-risk deal that they know they can afford.
Lenders have a legal responsibility to ensure they only lend money to people who are reasonably capable of paying it back, so if you are granted a mortgage by a reputable institution, it is likely a reasonable option. Do your homework though – a reasonable deal still might not be the best deal available . See also Reducing your Loan to value to get a better rate
Remortgaging FAQ
Can I remortgage to get a better interest rate?
This depends on several factors, including and changes to your credit rating, expenses and income. The current Bank of England rate, and property values will also play a role. Consult an independent mortgage broker for advice.
Can I remortgage for more flexibility?
Yes, this may be a possibility. Remortgaging is not always for better rates, it can also be for flexibility that better meets your needs.
Can I remortgage to consolidate my debts?
Yes, this is a common reason for remortgaging. To do this, you must have built up some equity in the property, and have a sufficient credit rating. The bank will consider several factors to estimate its risk in remortgaging for this purpose.
Will I have to pay an early repayment charge?
This depends on the details of your contract, but is a common charge.
How much will an exit fee cost?
These can be substantial. In addition to the early repayment fees of as much as 1-5% of your outstanding principle (which covers the bank’s loss of interest collection), an exit fee may also be charged to cover administration work, and is commonly up to £300.
What fees will a remortgage have?
Usually the fees are similar to your initial mortgage. There are administration and other fees often adding up to £1000 or more.
Is there a valuation fee to remortgage?
Usually this is free for a remortgage, but if it isn’t, it is usually around £300-400.
Is there a conveyancing fee to remortgage?
Most remortgages include this, but as lender will select the solicitor for you, and will be paying a low price for this, service may be slower.
Will a broker charge me to remortgage?
Yes, a broker will take a fee for arranging your mortgage. This varies, but can be anything from a fixed fee of £300, to 1% of the loan amount.
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