Remortgaging can be a powerful tool to save money on your mortgage or release equity from your home to fund an extension or other home improvements. You may be able to stay with your current lender, but as with other bills, it’s important you shop around for the right deal. Your mortgage is probably your largest monthly expense, so asking a mortgage broker to see what’s available to you from other lenders could save you a lot of money. Also, timing is crucial, because remortgaging at the wrong time could cost you more than you save. In this guide, we’ll explain what remortgaging is and how it works, how a remortgage compares to a product transfer, when you might want to consider remortgaging, and more!
What is Remortgaging?
Remortgaging is the process of switching your existing mortgage to a new lender while remaining in the same property. Let’s have a look at some of the reasons you may want to consider remortgaging.
- Get a better interest rate. If interest rates have fallen since you took out your mortgage, you may be able to switch to a cheaper deal and save money on your monthly repayments.
- Borrow more money. You can use remortgaging to release equity from your property and borrow additional funds for home improvements, a new car, or other big expenses.
- Change the terms of your mortgage. You may want to extend or shorten the term of your mortgage or switch to a different type of product (e.g. a fixed-rate or tracker mortgage).
How Does Remortgaging Work?
As mentioned above, remortgaging involves switching your existing mortgage to a new lender while staying in the same property. Let’s have a look at how the process usually works.
- Assess your needs. The first step is to speak to your mortgage broker about your financial situation and goals. Are you looking to reduce your monthly repayments, borrow more money, or change the terms of your mortgage?
- Research lenders. Your mortgage broker will then compare different mortgage lenders, including your current lender, to see what deals are available to you from across the market.
- Apply for a new mortgage. If there’s a suitable deal that you want to switch to, your mortgage broker will gather the required information and apply on your behalf.
- Valuation. The lender will typically arrange for a property valuation to determine its current market value.
- Offer acceptance. If your application is approved, the lender will make you an offer.
- Legal process. A solicitor will handle the legal paperwork involved in transferring your mortgage to the new lender.
- Repayment. Once the process is complete, you’ll start making your mortgage repayments to the new lender.
Although remortgaging may seem like a long process, with the help of a good mortgage broker, it tends to be a fairly smooth and seamless transition from one lender to another.
Remortgaging may not be necessary if your current lender offers you a better deal than you can get elsewhere. In this case, a product transfer may be more suitable, which we’ll discuss a bit later in this guide.
Does it Cost Money to Remortgage?
There may be some costs when remortgaging, but if you’re moving to a cheaper deal, the initial costs should be outweighed by the savings you’ll make on interest. Your advisor will keep this in mind when looking at remortgage options for you. The main potential costs involved with remortgaging are solicitor fees, broker fees, mortgage product fees, valuation fees and Early Repayment Charges.
However, typically they won’t all apply to your situation. Early Repayment Charges (ERC), for example, will only apply if you’re ending your current deal early. If you’re remortgaging at the end of your deal you won’t have to pay an ERC. You can find out more about ERCs by reading our guide, ‘What is an Early Repayment Charge and When Do I Have to Pay It?’
Likewise, mortgage product fees are only applicable to certain deals and valuation fees are often covered by your new lender. Your mortgage advisor will be able to work out how much your remortgage might cost so you’re fully informed.
Learn more about the cost of remortgaging by reading our guide, ‘How Much Does it Cost to Remortgage?’
What’s the Difference Between a Remortgage and a Product Transfer?
A remortgage is when you switch to a new deal with a new lender, whereas a product transfer is when you switch to a new deal with your current lender. As mortgage advisors, the first thing we do is see what rates your current lender can offer you. We then search a wide range of lenders from across the market to what rate you could get elsewhere. If you can get a better deal by switching to a new lender, then we’ll usually recommend you remortgage so you can save money. However, if your current lender can offer a better deal, then we may recommend you do a product transfer instead. Either way, we can handle the application and ensure the switch to your new mortgage is as seamless as possible.
When Should I Remortgage?
There are different scenarios and situations where you might want to consider remortgaging. In this section, when we say ‘remortgage’ we’re really talking about switching to a new deal – which, as explained earlier, could also be a product transfer if you stay with your current lender. Let’s have a quick look at different scenarios where you may want to consider remortgaging.
Remortgaging When Your Current Deal is About to End
This is perhaps the most ideal point to lock in a new deal. If you don’t remortgage at the end of your current introductory period, your lender will move you onto their Standard Variable Rate (SVR). This tends to be the highest rate you can be on with your lender, so switching to a new deal could save you a lot of money. Although you can lock in a new deal 3 to 6 months before your current one ends, you won’t have to pay an Early Repayment Charge because the new mortgage will only come into effect when your current deal ends. It’s recommended you speak to a mortgage broker at least 3 months before your current deal ends, but if you’ve left it later than that we should still be able to help you lock in a new rate.
Remortgaging When Your Deal Has Already Ended and You’re On the Standard Variable Rate
If you didn’t remortgage at the end of your previous deal, it’s likely you are now on a Standard Variable Rate mortgage. The SVR is your lender’s default rate without any discounts or deals applied, so you may be paying more than you need to for your mortgage. The good news is that you should be able to switch to a better rate fairly quickly, so speak to one of our friendly advisors to discuss your options. You can find out more about SVR mortgages by reading our guide, ‘What is a Standard Variable Rate (SVR) Mortgage?’
Remortgaging During Your Current Deal
Although less common, it’s not unheard of to remortgage during your current deal. The downside to doing this is that it will usually mean you’ll have to pay an Early Repayment Charge to end your current deal early. Despite this, there are certain situations where you might want to consider remortgaging early, for example, if you need to release equity to fund home improvements or if you are eligible for a lower rate that would save you money in the long run. You can learn more about how ERCs work by reading our guide, ‘What is an Early Repayment Charge and When Do I Have to Pay It?’ You may also want to read our guide, ‘Can I Remortgage Before My Fixed-rate Period Ends?’
Remortgaging When Interest Rates Are Likely to Rise
If interest rates are likely to rise, you may want to consider remortgaging to lock in a longer fixed-rate deal. Fixing your mortgage can provide stability and protect you from rising interest rates. However, whether you should remortgage now or not, and what product to switch to, depends on more than just interest rate trends. Where you are in your current deal and what plans you have also come into play, so it’s important to speak to a mortgage broker before making any decisions. You can learn more about fixed-rate mortgages by reading our guide, ‘What is a Fixed-rate Mortgage and Should I Get One?’
Remortgaging When Interest Rates Are Likely to Fall
Although it can be tempting to wait for rates to drop, there is always the risk that the opposite could happen. Therefore, remortgaging to a shorter fixed-rate product or a tracker mortgage may be more suitable for some people. If you’re unsure how tracker mortgages work, you can read our guide, ‘What is a Tracker Mortgage and Should I Get One?’ But, as above, you shouldn’t make your decision based only on falling interest rates. Plenty of other factors come into play, so please get in touch so we can assess your options.
Remortgaging When Interest Rates Are Stable
When interest rates are stable, the decision to remortgage will likely be based on other factors, such as the end of your current deal or a need to borrow more money. What type of mortgage you switch to will depend on your plans and your risk tolerance. If you’re not sure whether mortgage rates are expected to rise, fall, or stay the same, please feel free to get in touch with us for a chat.
Remortgaging Once You’ve Built up More Equity
If the value of your property has risen and you’ve kept up with mortgage repayments, you’ll now own more equity in your home than when you took out your mortgage. This may mean that you fit into a lower Loan-to-value (LTV) mortgage bracket, and therefore you may be eligible for better deals. However, you’ll need to take into account any Early Repayment Charge before deciding whether now is the right time to switch or not. Feel free to get in touch with us and we can look at your options and do some calculations to see when would be the most cost-effective time for you to remortgage. You can also learn more about LTV by reading our guide, ‘What Does Loan-to-Value (LTV) Mean and How Does it Affect My Mortgage Rate?‘
Remortgaging to Release Equity/Borrow More Money
Another common reason to remortgage is to borrow more money. This is also known as releasing equity, and if your equity has grown since buying your home, you may be able to borrow more than you realise. That being said, it’s not recommended to borrow more on your mortgage unless you really need to. Some reasons people release equity are to build an extension or make other home improvements, buy a new car, or even buy a second property. The interest rates for mortgages tend to be lower than other forms of borrowing, such as personal loans and credit cards, but just be aware that you may be paying off your mortgage for a much longer period of time. To find out more about this form of borrowing, please read our guide, ‘Remortgaging to Release Equity’.
Remortgaging to Extend or Reduce Your Mortgage Term
Switching to a new deal can be a good opportunity to revisit your mortgage term. If you are in a stronger financial position than when you took out your mortgage, you may want to shorten your term. This will increase your monthly repayment, but you’ll pay less interest overall and you’ll be mortgage-free sooner. Conversely, if you’re struggling to keep up with repayments, you may want to consider extending your term. This will reduce your monthly repayments, but you’ll likely pay more interest overall and it’ll take longer to pay off your mortgage. If you only need to reduce your mortgage term temporarily, a remortgage may not be the right option for you. There are options through the Mortgage Charter that allow you to do this whilst keeping your current deal. To find out more about this, please read our guide, ‘Should I Extend My Mortgage Term or Switch to Interest Only?’
Remortgaging to Overpay Your Mortgage
Most lenders allow you to overpay your mortgage by 10% to 20% each year without incurring an Early Repayment Charge. However, if you are in a position to overpay by more than this amount, for example, if you’ve received some inheritance, remortgaging may be the right option. You can effectively pay off as much as you want when remortgaging by borrowing a smaller amount on your new deal. If you would like to use the money to reduce your mortgage payments but still have access to it if needed, you may want to consider remortgaging to an Offset Mortgage. You can learn more about these products by reading our guide, ‘Offset Mortgages – Could You Save Money on Your Mortgage?’.
How Do I Choose the Right Remortgage Deal?
As you can see above, there are many different scenarios where you may want to consider switching to a new deal. If remortgaging is the right choice, it’s important you switch to a deal that meets your current needs and future plans. This is also the perfect time to shop around for a lower rate. We recommend speaking to a mortgage broker like us, as we’re not affiliated with any particular lender. This means we can see what your current lender can offer and compare that against other available deals from across the market – including specialist lenders and exclusive deals that aren’t available directly. Whether you stay with your current lender or find a better deal elsewhere, we can help you switch to your new mortgage seamlessly. Simply book a chat with one of our friendly advisors to discuss your options.
The Bottom Line
Remortgaging is when you switch to a new mortgage deal with a new lender. Product transfers are when you switch to a new mortgage deal with your current lender – but people often say they are remortgaging even when they’re staying with their current lender. In reality, as mortgage brokers, we’ll always check what your current lender can offer first and then compare that to the wider market. Whether you end up remortgaging or doing a product transfer will depend on which lender offers the lowest rate and/or the most suitable deal. This is why it’s important to speak to a mortgage broker who has access to a wide range of lenders from across the market rather than just approaching your current lender. The most common time to remortgage is when you’re within 6 months of the end of your current deal, as this is the perfect time to shop around and lock in a better rate if possible. But there are other scenarios where you might want to consider remortgaging as discussed in this guide. If you think you may need to switch to a new mortgage deal soon, please get in touch with us and we’ll see what options you have.
At Michael Usher Mortgage Services, we’ve been helping people throughout Surrey, Hampshire and Berkshire for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of mortgages from across the market to find a deal that suits your needs. We’ll guide you through the process and help you switch to a new deal seamlessly. We can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
Talk to a mortgage advisor for FREE
Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will depend on your circumstances but will be agreed with you before proceeding.
