Let’s be honest, re-mortgaging is a bit of a minefield.
Whether you’ve seen a great deal or you want to save money, it’s never too early to start thinking about it.
In this guide, we’ll explain exactly what it is and what’s involved so you can decide if it is something you should do yourself.
Switching the mortgage on your current home to another lender is known as re-mortgaging. Basically, you are replacing your current mortgage with a new one.
If you’re happy in your home but want a new mortgage deal, it’s definitely something to consider.
People love to shop around for cheaper rates on car insurance, home insurance and other household essentials.
Arranging a re-mortgage is exactly the same. Compare deals. Look at different lenders. Discover whether there’s a chance to save some money.
In our experience, there are a few main reasons why people re-mortgage a property.
1. Get a lower interest rate
If rates are low, it could be a good time to save money by re-mortgaging.
If your current deal hasn’t finished, you may have to pay an early repayment charge to the lender – often known as an ‘exit fee’ or ‘admin fee’.
Using a mortgage adviser can help you work out the costs involved and whether it’s worth paying the early repayment charge or not.
2. Move from interest-only to repayment deal
Switching to a repayment mortgage can provide reassurance as you know a proportion of the monthly payment is going towards repaying your mortgage debt.
Some lenders can do this without the need to re-mortgage. If they can’t, you’ll need to apply for a full re-mortgage.
3. Fixed deal is up for renewal
Fixed rate mortgages are great if you want to make the same repayments every month for a set initial period (two, three, five years etc).
Once this period is over, you might end up paying a higher interest rate than before as you’ll be on a Standard Variable Rate (SVR). This could be the perfect time to start looking for a better deal.
4. Borrow more money
If you want to release some cash to fund an extension or makeover project, re-mortgaging can be a cost-effective way to borrow additional money.
Before deciding whether to do this, weigh up the pros and cons. It might be cheaper to take out a loan, rather than re-mortgage. If in doubt, speak to a mortgage adviser for advice.
In reality, there is no specific time frame. Technically you can switch mortgage deals any time.
Find out how much is left to pay on your current mortgage and get an exact figure from the lender.
Once you know the amount, you can work out how much you need to re-mortgage and what the monthly repayments are likely to be.
Remember, if you switch before the end of a fixed-term period could see you pay an early repayment charge.
If there is an ERC on your current mortgage deal, find out how much it is and what date it applies until. Your mortgage adviser can then recommend whether it is worth paying the charge to switch or waiting until the deadline has passed.
Unless you plan to stay with the same lender, you’ll need a solicitor or licensed conveyancer to act on your behalf. Basically, this is to ensure the legal side of the re-mortgage process is taken care of correctly.
Some lenders include the full cost in their products. Others will make a contribution towards legal fees. Some will offer neither.
Always check with your mortgage adviser so you can budget for this.
Do you know how to work out your loan-to-value (LTV) ratio?
It’s worth finding out. The lower it is, the more mortgage deals available to you.
To work it out, divide your outstanding mortgage balance by your home’s current value.
If your outstanding mortgage is £100,000 and your house is valued at £250,000.
100,000 divided by 250,000 = 0.4.
0.4 x 100 = 40
This means your LTV is 40%.
Some lenders charge a fee for specific mortgages.
Is your lender offering you a fee-free mortgage? Or do you need to pay a product fee?
Depending on how much the fee is, it could outweigh the benefits of switching. If you’re switching to save money, you need to know this.
If there is a fee, the lender may let you add this to the total cost of the mortgage, rather than having to pay the money upfront.
To work out whether you’re getting a good deal, you need to a full understanding of the total costs of the mortgage and all associated costs. Not just the monthly repayment.
If you’re happy with your existing lender and you don’t want to borrow any more money, a product transfer can be a great option.
A product transfer is a much quicker process because you’re basically moving your current mortgage balance over to a new deal with them.
Most product transfers can be done within 10 working days (or less) and you won’t have to provide the same amount of paperwork to support your application.
A product transfer means you’ll only be able to swap your current outstanding mortgage balance to a new product. You won’t be able to raise any additional capital or borrow any more money.
Staying with the same lender also means you may not have access to the most competitive products available for your circumstances.
If you want to add a partner to the mortgage or remove someone, you won’t be able to do this on a product transfer. You’ll need to re-mortgage and go through the legal application process again.
Being approved for a mortgage once doesn’t mean you’ll automatically be approved again.
In the majority of cases, you’ll need to provide the same information you did when applying for your first mortgage. This is because the lender will still have to carry out the same affordability checks.
By preparing your finances in advance you can ensure there aren’t any hold ups.
If you’re employed and re-mortgaging, you’ll need:
If you’re self-employed and re-mortgaging, you’ll need:
It’s never too early to speak with a mortgage adviser who understands the re-mortgage market and knows the exact criteria lenders are looking for.
Should you wish to tap into our knowledge and experience, give us a call and compare thousands of deals in an instant.
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