Understanding Remortgages – The Basics
There can come a time when you outgrow your current mortgage simply because it isn’t cost effective or you’d like to raise more money against your home. In this case, you can remortgage your property to find a new, more suitable deal. Currently a third of all mortgages in the UK are actually remortgages, so you certainly won’t be alone.
What is a remortgage?
A remortgage is the process of taking out a new mortgage, with a different lender, on a property you already own. This can be done to replace your existing mortgage, or to borrow more money against your property.
The three main reasons people choose to remortgage a property are:
- To save money
- To raise money against a property
- To get a more suitabke mortgage product
Another common reason for remortgaging is to pay off existing debts, although this may cost more than some other options available to you, so it’ essential you carefully consider the costs before you make a decision.
Remortgaging to save money
It’s all about finding a mortgage with a better rate of interest. When you take out a new mortgage, you’ll typically receive an introductory deal, which will offer a fixed, discounted or tracker rate for the first few years of the mortgage, before reverting to the lender’s standard variable rate. These introductory deals typically last for between two and five years, after which point, you’ll normally be able to find a better deal elsewhere.
So, when your introductory period ends, use the annual percentage rate (APR) as a measure to compare your deal with the mortgages offered by other lenders. However, it’s important not to only look at the headline rate. You should also factor in the costs and fees associated with moving your mortgage elsewhere.
Remortgaging to raise money
You can use te monies from a remortgage to increase the value in your home you borrow against, and, as long as you can afford the new repayments, this can be an effective method of raising extra capital for home improvements. This type of remortgage is also commonly used to consolidate debts. However, expert advice should be sought before you use a remortgage to consolidate your any debts.
Remortgaging to find a better mortgage
Sometimes a remortgage is the right thing to do because your circumstances have changed and your current mortgage is no longer the most appropriate mortgage for you. For example, you might be starting a family and want the predictability of a fixed-rate mortgage rather than a tracker. Alternatively, you might be earning more money and decide you want to make overpayments on the mortgage without a penalty.
How much does a remortgage cost?
A remortgage may offer you better value in the long run, but switching your mortgage provider can cost in excess of £1,000, so it’s essential you factor this into your calculations. The costs of remortgaging include:
- Your current lender’s fees – Check whether your current mortgage has an early repayment charge or exit fee as this will add to the costs of remortgaging.
- Fees charged by your new lender – You could be charged a number of fees, including a booking fee, reservation fee, valuation fee and a fee for releasing the funds.
- Legal fees – This will cover the cost of conveyancing work that may need to be done when refinancing your property.
In a lot of cases, your new lender will be willing to pay all or part of your current lender’s fees to help switch lenders; however, the cost of remortgaging is still a potential stumbling block.
The remortgage application process
A remortgage will be taken out with a new lender, so you’ll have to go through the mortgage application process in full. You will have to show evidence of your income, such as payslips and bank statements, along with details of your outgoings, like credit card repayments, personal loans, utility bills and other household costs.
To check the affordability of the remortgage, lenders will also carry out a ‘stress test’, which is designed to see whether you could keep up with the repayments if interest rates were to rise.
How can we help?
As an experienced team of in dependent mortgage brokers, we will discuss your circumstances with you to understand your needs before researching the market on an unlimited basis to find you the best deal. For more information about how we can help, please get in touch with The Mortgage Centres today.