Remortgaging remains a huge part of the UK mortgage market with more than 34,000 people switching mortgage lender in June 2017.
If you’re looking to raise or save money, a remortgage could be right for you. Citizens Advice said that as many as 1.2 million people could be better off if they switched to a new mortgage deal and that remortgaging could save you thousands of pounds in the short to medium term.
So, what is a remortgage? How do they work? And what does it cost? Our guide tells you everything you need to know about remortgaging your home.
Why you might want to remortgage
There are three main reasons why you might want to remortgage.
- Save money
If you’re coming to the end of your fixed or variable mortgage deal and set to move onto your lender’s Standard Variable Rate (SVR), you could save hundreds or even thousands of pounds by switching to another lender an
Rachel Springall, a finance expert at data site Moneyfacts, says that borrowers who decide to switch to a more competitive rate will benefit immediately by reducing their monthly repayments.
She says: “Borrowers who come off an average SVR of 4.60% today and switch to the average five-year fixed rate of 2.80% would save £146.48 a month on their repayments, which is £8,788.80 over a period of five years – cash that could be put to better use considering the rising cost of living.” (Based on a repayment mortgage of £150,000 over 25 years).
- Release cash for home improvements
Are you looking to build an extension or a conservatory? Do you need to refit your kitchen or bathroom? Or do you need to raise money to pay for essential repairs?
If you met your lender’s criteria, you can remortgage and borrow additional money to fund your home improvements. A new lender will want to know what the extra money is for and if you are borrowing a large amount, you may have to provide evidence of the proposed work (e.g. quotes).
- Release cash for other purposes
Many people remortgage to raise money for a range of purposes. You might want to increase money to:
- Pay off other debts. Mortgage rates are often lower than the interest rates on loans or credit cards, and so it may be financially beneficial to consolidate these debts by releasing equity.
- Help out a family member. Do you need to release some money to help your child onto the property ladder? Remortgaging can help you release cash to gift or lend to a family or friend.
- Buy another property. If you want to buy a second home or an investment property, remortgaging may let you borrow the money that you need.
When you may not be able to remortgage
There are several reasons why you may not be able to remortgage. Firstly, you may not have sufficient equity in your home. If you already owe more than around 90% of the value of your property, then a remortgage might not be available.
Secondly, affordability checks for new mortgages have been tightened in recent years. It’s harder to get a mortgage now than it was a few years ago, so if your income has fallen, or your commitments have increased, you might find that you can’t borrow the amount you need.
Finally, your credit rating may not be good enough. If you have missed any card or loan payments in recent years, you may find that strict lending criteria means that a lender won’t agree to your mortgage.
Look carefully at the best remortgage deals
Most lenders offer special remortgage products, and so you should shop around to find the right deal for you.
You’ll need to take the following factors into account:
- The equity in your home. If you want to borrow a high proportion of your property value, then you are likely to pay higher rates. The very best deals tend to be reserved for borrowers looking to borrow no more than 60% to 65% of the value of their home.
- Fixed or variable rate? You will need to choose between a fixed rate and a variable rate. Fixed rates guarantee your repayments at a certain level for a specified period, while variable rates will change as and when general interest rates change.
- Fees and charges. Most mortgage products come with fees, ranging from £199 to more than £1,000. Generally speaking, you’re better off paying a higher arrangement fee and taking a lower interest rate if you’re looking for a large mortgage, although an independent mortgage broker will be able to analyse the figures and work out the best deal for you.
Speak to your current lender
Once you’ve established what deals are available, you should talk to your current lender. Firstly, you need to determine that you’re not going to incur any ‘early repayment charges’ if you remortgage to another lender. If you are, it might mean it is not cost-effective to switch.
Your lender may also be able to offer you a deal to encourage you to stay with them. Compare this to the remortgage deals you have found to see which is best for you.
You can find out more about how to remortgage here.
What are the costs of remortgaging?
As well as an arrangement fee, there may also be other charges to take into account. Your new lender will want to value your home, and so there may be a valuation fee to pay. You may also incur some legal costs for switching provider.
Many lenders offer a ‘remortgage package’ including a free valuation and free remortgage legal fees. Make sure you take this and other charges into account when comparing remortgage deals.
Finally, it is important to remember that your home may be repossessed if you do not keep up repayments on your mortgage.