How does remortgaging work?

You may well have heard of remortgaging but never fully understood what it means. In layman’s terms, remortgaging is when you look to move from one mortgage deal to another, either sticking with the same lender or moving to a new one.

A mortgage is likely to be your largest financial commitment lasting you many years, but you don’t necessarily have to stay on the same mortgage as the one you initially took out, as your personal circumstances may, and probably will, change over the years, giving you a reason to remortgage.

Just as you did when you took out your first mortgage, it’s important to reevaluate your finances every now and then, and consider all your options in order to know you’ve got a mortgage that is right for you at that moment in time.

What is remortgaging?

Just as you might shop around for the best broadband deals and the cheapest energy rates, the same applies to your mortgage. You can shop around to see if there is an opportunity to save money.

If you do find a cheaper mortgage rate, you could end up switching onto the new mortgage deal, and this is what’s known as remortgaging.

Things to consider

Before you decide to go ahead and switch onto a new mortgage deal, it’s worth weighing up a few things first:

1. Check if your new lender is offering a fee-free mortgage (many lenders will write to you near the end of your current mortgage term and offer you a new deal to switch to), or if there is a product fee involved as this could counteract the savings you could have made by remortgaging.
2. There may be an early repayment charge on your current mortgage that you have to pay off before you can switch to a new deal. Again, this could outweigh the benefits of switching.
3. The lower your loan-to-value (LTV), the more mortgage deals that may be available to you. You can work out your LTV by dividing your outstanding mortgage balance by your property’s current value. For example,

Your outstanding mortgage is £100,000. Your property is valued at £250,000.

100,000 divided by 250,000 is 0.4.

0.4 x 100 = 40

So your LTV is 40%

4. Make sure you’re mortgage ready. Just because you have a mortgage already, doesn’t mean the same checks won’t be carried out when you apply for another one. Make sure your credit score is healthy as the lender will still perform the same affordability checks.
5. Consider speaking to a mortgage adviser. Our mortgage advisers understand the criteria that lenders are looking for and can compare mortgage deals to help find the right one for you. We have access to over 90 lenders and can search 12,000 mortgages, saving you time and taking the hassle out of doing it yourself.

When and why do most people remortgage?

There are various different reasons why people choose to remortgage. Some of these might include :

• Take advantage of low interest rates
• Your current fixed deal is up for renewal
• You want to move from interest-only to repayment
• You want to be on a better rate than you’re currently on
• You want to be able to make overpayments
• You want to borrow more money

For instance, you may have initially taken out a fixed rate mortgage where you pay the same amount every month and the interest rate stays the same. However, once this initial period has ended (it could have been a 2,3,5 year fixed) you will fall onto a standard variable rate (SVR) where you could end up paying a higher interest rate than you were previously. This is usually the time when many homeowners look to remortgage in order to switch to a better mortgage deal.

If you’re keen to remortgage your home, you should take advice from an independent mortgage broker who will be impartial and have access to a wide range of products on the market. Call us on 08454 500200 or click here to make an enquiry.