Remortgage Guide and Deals Comparison
Remortgaging can, for the right person, save a large amount of money. Read this guide and compare remortgage deals to see if it would work for you.
Remortgaging – The Facts in Brief
Remortgaging can save you money!
- Mortgage coming to an end.
- Your homes value has increased a lot.
- You want to borrow more money.
Not suitable for:
- High mortgage exit fees for current deal.
- You have a small amount of equity in your house.
- Your situation has changed (for the worse).
- You have a great mortgage deal already.
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.
Introduction to Remortgages
What is remortgaging?
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.
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.
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.