If you’re looking to borrow a sizeable amount of money then remortgaging can often be the cheapest way to borrow.
However, when remortgaging you are effectively putting up your home as security. As such it can be a long and slightly risky process so you’ll need to make sure you know everything you need to know before going in.
What is remortgaging?
Remortgaging is taking out a new mortgage to pay off an existing one using the same property as security.
It can be a time-consuming process. You’ll need to go through the whole mortgage application process again and your property will need to be valued. But it’s well worth doing
Why remortgage?
To save money
The most common reason to remortgage is to lower your monthly repayments. Switching mortgage deals can save you hundreds or thousands of pounds a year.
For example, if you had a £200,000 mortgage on an interest rate of 4% over 25 years it would cost £1055.67 a month on a repayment basis.
If you remortgaged to a rate of 3% you’d monthly repayments would fall to £948.42. This means you would save £1,287 a year.
Many people remortgage at the end of a fixed rate, especially if the go-to rate on their mortgage (often the lender’s standard variable rate) is higher than what they were paying before.
To release value
If your property has gone up in value since you took a mortgage out then remortgaging can release some of this value. To do this you need to remortgage for a higher amount.
You might want to do this if you have other debts (at higher interest rates) to pay off or if you need money for home improvements, a new car or for another reason.
For security
If you’re on a variable rate mortgage such as your lender’s standard variable rate (SVR), a discounted mortgage, or a tracker rate, your payments will go up if interest rates change.
Remortgaging to a fixed rate will give you security and help you budget. Fixed rate mortgages mean your payments stay the same for a set period of time regardless of what interest rates do.
To get a different sort of mortgage
Some mortgages allow you to offset savings or your current account balance. Some also offer flexible features such as the ability to make overpayments or take payment holidays.
If you intend to rent out your home you’ll either need consent to let from your lender or to remortgage to a buy-to-let mortgage.
What do you need to consider when remortgaging?
Fees
There might be fees for redeeming your existing mortgage and fees for taking out a new mortgage. All of these fees need to be taken into account when working out whether it’s worth remortgaging.
Your property’s value
Generally if your property has risen in value since you took out your mortgage, then remortgaging shouldn’t be a problem. However, if your property has fallen in value it may be an issue.
If you are in negative equity –when you owe more on your mortgage than your property is worth – you won’ be able to remortgage.
Your personal circumstances
When you remortgage you’ll have to go through the same process you went through when you first took out a mortgage. This will include credit checks, income and affordability calculations, and being in employment.
If your financial situation has changed it may be difficult to remortgage.
Lending criteria
Every mortgage comes with lending criteria such as who it’s available for (for example, first-timer buyers, remortgagers or landlords), the loan-to-value (LTV) and a minimum and maximum mortgage amount.
Suitability
Before you remortgage check the new mortgage deal is suitable for you. Can you make overpayments or take a payment holiday? Can you port the mortgage if you move house?
To get the best deal for your needs you need to shop around. A mortgage broker can help you make a decision.
