What is remortgaging? - remortgaging explained
Remortgaging refers to taking out a new mortgage on a property you already own, either by switching your provider or product. There are two main reasons homeowners choose to do this – one is to save money, while the other is to gain some equity to free up funds for other pursuits.
When might a remortgage be a good idea?
- You’re unhappy with your deal. When you take out a mortgage, you’ll likely be welcomed in with a great introductory offer. But once that’s up, you’ll find yourself on the lender’s Standard Variable Rate (SVR), which is unlikely to be the cheapest option available. If any exit fees aren’t so high as to make it unviable, you could make a big saving when you switch.
- You’d like to release some equity. Whether it’s taking some time to go travelling, or helping the kids get on the property ladder themselves, there’s all sorts of reasons you might want to release some of the equity locked into your home. Remortgaging to release equity is incredibly common, and is a great way to free up some funds if you’ve been paying in for many years.
- You’re ready for some different terms The terms of your current mortgage might have certain restrictions, so you may want to switch to one that fits your current circumstances. By switching, you’ll have the opportunity to find a more flexible arrangement, one that suits your plans and changing situation.
When might a remortgage be a bad idea?
- You already have a very good deal. While there’s every chance you could get a better deal elsewhere, it may transpire that you’re already on the best one available, or close enough to it that the move wouldn’t be worth it.
- Your mortgage is very small. If you have as little as £50,000 left on your loan, it might not be worth the switch. That’s because the fees involved will be much more significant relative to what you could save; they could even end up larger than your total saving. What’s more, once your mortgage gets below £30,000, you’ll start to find that some lenders won’t be willing to take you on.
- You have a bad credit history. Lenders can be selective about who they loan to these days, and if your credit history isn’t great, there’s every chance you’ll get rejected.
- Your circumstances have worsened in the eyes of lenders. Your financial situation may not look as good on paper as when you took out the existing mortgage. A change may not be as beneficial as you intended, so make sure you research before making a final decision.
- It would cost too much to get out of your current mortgage. In some mortgage agreements, customers are locked in by incredibly high early repayment charges. Even if you could afford to get out, it may not make financial sense to do so. In this situation, if you’re set on getting out, you may need to move to a new house.
- You own less than 10% of your property. If you’re looking to borrow as much as 90% of the current value of your property, you’re highly unlikely to get a better deal. Mortgages of this size are usually angled towards property purchases rather than remortgages.
- You’re in negative equity. If the value of your property falls, you could end up in a situation where what you owe back to your lender is larger than what your property is worth. In this situation, a new lender won’t want to take you on, so you’d have to negotiate any new arrangements with your existing lender. You could also try adding value to your property, to bring your equity back into the positive. For ideas on how to do this, take a look at our guide.
How to remortgage your property
1. Reflect on whether remortgaging is right for you
First, weigh up all the aforementioned points and assess whether you’re in the right position to remortgage. You’ll then need to check what (if any) early repayment charges you need to get out of your existing mortgage, as well as the exact amount you owe your current lender.
2. Check your budgets
Mortgage providers need to determine your eligibility first, such as whether you can realistically afford it. They’ll review your income and outgoings, so to put yourself in a good position you should consider doing the sums yourself to get a clear picture of what’s financially viable.
3. Get professional advice
Speak to an independent mortgage adviser. If you tell them why you’re looking at remortgaging and what you want from your new arrangement, they should be able to advise the most suitable type of mortgage given your situation.
4. Speak to your current lender
Once you’ve found a new mortgage deal with the help of your adviser, let your current lender know. They’ll probably want to keep your business, and there’s every chance they could match what you’ve been offered elsewhere.
5. Apply for your new mortgage product
If your existing mortgage lender fails to make you an appropriate offer, consider applying for a new mortgage. To do this, you’ll need to submit an application form along with any other documents that that particular lender requires, such as identification and proof of earnings.
6. Have a solicitor take care of the paperwork
You’ll almost always need a solicitor or conveyancer to take care of the legal elements when it comes to property purchases, sales and mortgages. They’ll sort all the paperwork and arrange for the transfer of funds once everything is in place.
If you’re considering remortgaging your home, speak to a Post Office advisor and see how we can help. If you’ve still got some questions about mortgages and the mortgaging process, separate fact from fiction with our mortgages myth busting guide.