Remortgaging is when you switch your mortgage to a better deal to save money, or release some equity. Your life is going to change over the course of your 25-35 year mortgage, so shouldn’t your deal change too?
Mortgage rates are at an historic low in 2021, which makes now a great time to think about switching to save. But what exactly is a Remortgage? Why is it important? And what should you look out for?
What is Remortgaging?
‘Remortgaging is the term given to switching your mortgage to a new lender or switching to a different deal offered by your existing lender’. It is also the process of paying off what you currently have left on your property's existing mortgage with a new mortgage.
When interest rates are low, lenders usually offer attractive remortgaging deals to win business and save you money. Remortgaging could be a great way to free up cash and save money on monthly repayments.
For example, if the interest rate on your current mortgage is 3% and you are offered a different interest rate of 2% or lower you probably want to choose the mortgage with the lowest interest rate.
Should you Remortgage?
There are few reasons why you may want to Remortgage your property at some point in your life. There is not a yes or no answer to this question.
You should only Remortgage if you feel it is the right thing to do, as it is ‘one of your biggest and most important financial commitments', as recommended by ‘Finance Care Guide’.
When mortgage rates are low it can seem like a ‘no brainer' to switch to that deal. However, you need to make sure that you have a clear understanding of how your future repayments might be affected if interest rates change. You can get advice by speaking with an FCA-approved Mortgage Expert at Mortgage Propeller who is more than happy to help.
You can remortgage at any time, however, the majority of people may choose to Remortgage when their initial tie-in period is coming to an end (referred to as their fixed-term). This usually occurs in the first 2-5 years and getting a better deal in this situation can often save a lot of money in the years to come.
Whatever the reasons for remortgaging, it is important that you don’t take the decision lightly. The process can have a positive effect on your life if timed right. But it can also cause issues if you do it at the wrong time, so it’s important to speak to a Mortgage Expert.
Remortgaging to Release Equity
You may have built up equity in your home by paying off your mortgage or through an increase in property value. Did you know that you can release this equity (££) and use it for other purposes?
For example, you may want access to extra money to buy a car or for home improvements, and one of the ways you can do this is by remortgaging to release equity.
You release equity by taking out a new deal that is for more money than your current mortgage. This gives you access to a large cash sum. By doing this you are essentially getting a loan and using it as collateral, therefore you will be utilising part of your equity.
This may increase your interest as it is a larger mortgage amount than what you had before.
What are the benefits of Remortgaging?
There are lots of benefits associated with remortgaging, these include:
- Reducing your monthly payments.
- Securing a better interest rate and shortening the time it will take to pay back.
- It can also be a good option if you want to borrow more to afford home improvements.
- You can also release equity to pay off built-up debts, such as credit cards and loans.
How does Remortgaging Work?
Deciding to Remortgage is more than just deciding that you want to switch deals. Before you Remortgage you must pay off your current mortgage with the amount you are borrowing from your new mortgage, and you can use your home as the security for the new loan. You will then begin to make repayments under the new terms.
The process of remortgaging is usually not as tedious as the application form when you first purchased your home. Although it is still something that needs a lot of consideration and planning, as it is a huge financial decision.
Remortgaging in 7 Steps
Here are a few steps on how the remortgaging process works:
- Complete an Agreement in Principle - To begin the remortgaging process, you need to get an Agreement in Principle (AIP). It is a way to find out whether a lender is willing to offer you the amount you need for your mortgage. It is a way of helping you understand your options as it is important to note that getting an AIP does not guarantee you approval for your Remortgage.
- Consider all the Costs - It is important to check whether the lender you plan on moving to has extra charges, as you want to ensure you are getting the best deal.
- Application Fee - This is a charge to set up your new mortgage with your new provider. It is also known as a booking or arrangement fee.
- Valuation Fee - This is a charge which confirms the value of your property.
- Solicitor’s Fee - A solicitor will need to manage the transfer of your mortgage. It is important to know about all the costs upfront so that you can know if you are getting the best deal.
- Apply for your new Mortgage – Once you have an AIP with your new lender and have considered carefully if it is the right decision for you, then you may apply for your Remortgage. At this stage, you will also provide details of your finances and personal circumstances, and details of your current mortgage.
- Complete your Remortgage – At this stage, the lender will assess your financial and personal situation. They may have your property valued for you at this stage too, and this is when you will need a solicitor to transfer your mortgage.
Once your lender has carried out the necessary checks and your solicitor has handled the transfer of your mortgage, you can sit back and relax knowing that you have got yourself a better deal and have saved yourself money.