What is remortgaging?
Remortgaging refers to when you change your mortgage policy. This can either be to a policy with your existing provider or to a different provider altogether.
What are the benefits of remortgaging?
People can decide to remortgage their property for a number of reasons:
- Consolidating credit card or loan debts into a mortgage can offer preferable terms and rates of interest than would otherwise be possible. This can lead to smaller payments servicing that debt, as they will now be part of your mortgage.
- Releasing equity to finance home improvement or other investments can give far better terms and lower rates of interest than other forms of borrowing. Home improvements can actually increase the value of your property if carried out correctly.
- In the time since you purchased your original mortgage, better deals may have become available offering lower rates of interest or lesser charges. Changing to one of those policies can lower the required monthly payments.
What are the potential disadvantages of remortgaging?
People looking to remortgage should be careful of a number of areas.
- Mortgage lenders may have included an early repayment charge, final repayment charge or other fees in your policy contract. Remortgaging either to a new deal or an entirely different provider may lead to hundreds, if not thousands, of pounds of charges.
- When changing to a different provider, legal representation and a revaluation of the property will be necessary. These can in some cases be provided for free by the company you are changing to, but in other cases these will be charged for. Again, these fees can reach hundreds or thousands of pounds.
- If your property has dropped in value since you first mortgaged it, you may be in negative equity. If this is the case, you will be required to pay in full the difference between your old mortgage and any new mortgage you acquire. Think very, very carefully about whether it is financially prudent to remortgage if this is your situation.
- The terms of the new contract may be substantially different to your existing one. Be sure to ask all the questions you asked when first purchasing your mortgage, if not more.
- Some providers place restrictions on what existing customers can do when they remortgage. This includes limiting what products their existing customers can change to, and putting high charges on moving to other providers. Be sure to ask your new provider what policies they have in this area and make note of what they say.
- Different providers may have different levels of customer service. How does your new provider’s customer service stack up? You can find out both through your own contacts with them and, if you’re more dedicated, through resources such as online customer testimonial websites.
- How changeable are the terms of the policy? Can fees, interest rates or other charges be increased over time without notification? If they do raise fees or other costs, what responses are available to you?
How much does it cost?
Remortgaging can either be very cheap or remarkably expensive, depending on a number of factors. Potential fees and costs include:
- Revaluation and legal fees when changing providers.
- Early repayment charges, final repayment fees or any other charges built into your existing mortgage that activate when remortgaging.
- A Higher Lending Charge (which may be rendered obsolete in the near future) which can apply if you are borrowing more than 75% of a property’s value.
- If you’re in negative equity, you will have to pay the difference between the old and new mortgage.
- Local search and Land Registry fees, if applicable.
Many of these fees may not apply to you, or will be covered by either your old or new lender. Knowing the full amount you will be charged is an important factor in making any final decision.
How do you choose between mortgage or remortgage products?
Many people base their mortgage and remortgage decisions on three different factors; type, cost and contract. Type refers to what method the mortgage uses to determine its interest rate. This could be tracker, variable, discounted or a number of other options. Cost is self-explanatory, with the contract referring to how flexible and favourable the terms, conditions and charges of the policy are.
To find out more about the different types of mortgage repayment options, refer to our Guide to Mortgage Repayments and Guide to Mortgage Interest Rates.
In terms of cost, there are a number of questions you should ask when comparing different mortgages:
- What is the initial interest rate, and how long does this rate last?
- What is the lender’s Standard Variable Rate of SVR? If you stick with the policy after its opening term, this is the rate you will be paying for the duration of the mortgage.
- What loan-to-value (LTV) ratio is required by the lender? LTV refers to the maximum amount you will be able to borrow, and usually ranges from 75% to 95% of the property’s value. Some mortgage lenders will go further in both directions. The larger the initial deposit, the lower the monthly interest rate charges.
- What charges or fees are included in the mortgage? How much will they amount to over the first year, or first five years? These can have a significant bearing on the cost-effectiveness of your mortgage.
- Is there an early repayment charge? What other charges and fees are there?
When all these factors have been taken into account, try to work out the overall cost of your mortgage over the first five years, based on the amount you wish to borrow and taking into the account the initial introductory rate. Doing this for a number of products can indicate which is more cost effective for your money. You can use our mortgage calculator to work out the cost of any particular remortgage deal.
Who provides remortgaging products and services?
While there are many things to consider when going through with remortgaging, careful planning and a full assessment of the options available will prevent any surprises impacting the savings or benefits you hope to achieve. You should make sure you have checked all the deals available before you make a final decision.
Our online remortgage comparison tool allows you to compare the advantages and disadvantages of all the leading lenders' various remortgage rates, or we can put you in contact with an adviser who can get you an independent remortgage quote.
There are a large number of different organisations, individuals and companies involved in the remortgaging market. Mortgage deals themselves are typically provided through banks, building societies or specialist mortgage companies. These products are distributed both directly and through a network of brokers and intermediaries.
Independent Financial Advisers (IFAs) can also offer independent, unbiased financial advice on mortgage products and surrounding issues. Independent financial advisers can also operate as brokers, under the name of independent mortgage brokers.
They remain the only brokers who will both be unaffiliated with any company or product, and also work on a flat fee rather than commission basis.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.