Remortgaging can be simply described as switching your current mortgage deal to a different one. You may choose to do this in order to change the terms of your mortgage based on your personal needs - thing such as the duration of your mortgage, you monthly repayments, and to switch to another fixed rate term.
How does remortgaging work?
Many may be confused about the remortgaging process as it is commonly associated with something that may need to be done out of necessity, for example, in the case of being in a difficult financial situation. We often the word remortgaging being thrown around when people are talking about tackling their debt, loosing jobs, or generally needing additional forms of income.
What many people don’t realise that remortgaging is not something you have to do during financial crisis. Quite the opposite, remortgaging is a fantastic opportunity to keep your mortgage payments in check and avoid over paying on your mortgage.
Look at it that way - when you are no longer getting the best price for your broadband or phone deal, you switch your provider to ensure you are getting the best price possible. You should approach your mortgage the same way. Remortgaging allows you to lock into a new deal with a lower interest rate, reducing your overall mortgage repayments and offering you better value for your money.
Why should you remortgage?
Remortgaging has one main benefit, particularly in 2022 when interest rates are rapidly increasing, and are predicted to go up further - it enables you to save money by locking into a fixed mortgage rate and avoid having to pay additional interest on a standard variable rate.
Remortgaging can therefore be used to effectively save money, as well as release equity in your home, and help you improve your financial situation. By locking into a new lower rate, or simply switching to a fixed-rate mortgage you will find your monthly mortgage payments decrease, which can result in hundreds of pounds worth of savings annually.
Remortgaging will also allow you to release equity, if you wish to do so. Releasing equity may be used by those needing additional finance, either for an investment, house improvements or to use it to start a business. Equity can be defined as the value of your house that you don't pay any mortgage on. The amount that 'you've paid off' so to speak. This includes the amount of deposit you originally put into the home when you purchased it.
You can work out how much equity you have by subtracting your remaining mortgage debt from the actual value of your home. For example, if your home is worth £200,000 and your mortgage is £150,000, your equity is £50,000.
The Process of remortgaging
The process of remortgaging can be surprisingly simple, especially with the help and advice of an experienced mortgage broker. There are multiple options available to you, and your mortgage broker can advise you on the best way to go forward. If you are looking to remortgage in order to lock into a new mortgage deal, it’s worth noting that you can do that even up to six months before your deal ends, to beat rising interest rates.
Switching to a new lender
When looking to switch lenders to get a better mortgage deal, you may be required to go through a process similar to when you were initially applying for a mortgage. As much as having to resubmit all of your personal details, and financial details can be time consuming, it will pay off in the long run if another lender is offering you a particularly favourable deal. Your new lender will also have to check your credit history to confirm you meet their requirements for a borrower.
If your credit score has significantly decreased since the last time you remortgaged, or applied for a mortgage in the first place, building it back up again before remortgaging with a new lender can help you get better deals. You will then be required to hire a conveyancing solicitor to handle all of your legal paperwork. Keep an eye out for any remortgage deals that come with free valuation and legal work, as these can help you save additional money. Once all of your paperwork is signed and completed, your new mortgage provider will cover the cost of your mortgage to the previous lender, and you will start paying them instead.
Switching to an existing lender
Switching your mortgage deal to a different one with your current lender is one of the easiest ways to remortgage. This is because your current lender already has all of your legal details, meaning there is no need for you to submit any additional documentation, or authorise your identity. The process can be as simple and straightforward as picking up the phone and calling your lender directly, and can be completed in under an hour.
However its important to remember, that if you choose to remortgage independently, you may not be getting the best deal out there available to you. Mortgage brokers have access to dozens of different lenders, offering special deals and incentives which you may not be able to access independently. If your priority is to save as much money as possible, changing your lender through a broker can guarantee the best results.
Things to consider before remortgaging
Everybody can remortgage, even those who may not have a shining credit score or may be experiencing financial difficulties. Actually, many people remortgage exactly for those reasons - for their mortgage to suit their financial situation better.
However, if your main goal is to remortgage in order to save money and avoid overpaying on your interest rate, there are a couple of things you may want to consider before applying;
Has your credit score changed?
If your credit score has recently took a punch, or has clear room for improvement you may want to consider getting it back in shape before applying for a remortgage with a new lender. Just like applying for a mortgage, better credit scores will oftentimes mean better mortgage, or in this case, remortgage deals, offering you better value and better potential for savings.
You can easily check your credit score through the three main credit rating agencies: Experian, Equifax, and TransUnion.
Have you recently changed jobs?
Recent change of employment, even if making a salary, increases your riskiness as a borrower in the eyes of the lender. The rule of thumb is that you’re expected to be in a job for at least three months before being able to get considered for a loan. If you have recently changed jobs, wait till you’re a couple of months in and have a stable history of income being deposited into your bank account to qualify for the best remortgage deals.
Do you have to pay a fee if changing lenders?
Certain lenders will ask for an early leaving fee when remortgaging. Your personal circumstances will decide whether that fee is worth paying or not - you may find that the deal you’re getting from a different lender will offer you savings that will cover the early leaving fee, and more, so don’t let it put you off.