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Remortgage
What is a remortgage? How does the process of remortgaging work in the UK?
Remortgaging or refinancing effectively involves switching your existing mortgage to a new deal. It can either be with your current lender or a different lender.
Homeowners in the UK often remortgage to take advantage of better interest rates, reduce monthly payments, or perhaps release equity from their property.
Breaking the process down, stage one is to review your current mortgage deal. We look to understand the terms of the existing mortgage, including any early repayment charges and any other conditions. It’s crucial to understand those before you make any further decisions.
Second is to compare mortgage deals. Somebody like ourselves at MMPE will help you compare the available options and consider any charges or penalties involved.
The third step is to apply for your remortgage. Once you’re happy with all the research and what’s available to you, you could allow us to assist you through the application process.
Like your first mortgage, you’re going to have a valuation and legal work. The new lender will want to value the property and you will instruct a conveyancer to handle the legal aspect. This is predominantly about moving the funds from one lender to another in a legal format.
The final stage is completion. Once everything’s in order, your new lender will pay the new funds to your solicitor, who will pay off your old mortgage. If you have applied for more money than you need to repay that mortgage, any additional finances are passed to yourself.
How long does it take to remortgage?
The remortgage process involves arranging finance and then the legal and conveyancing side. The remortgage application itself doesn’t take too long.
It’s about reviewing your requirements, doing the research, submitting an application and getting that through to offer. It can typically take two to three weeks. The legal side, again, shouldn’t take overly long.
If your current mortgage deal is nearing its end, we would generally recommend you start the process around six months before. That will allow you generally to secure better rates and manage any rate changes that may occur.
If rates drop, we can move to a lower rate. Doing it early reduces any stress. Like a lot of things with mortgages, it’s just about getting organised and prepared.
How often can I remortgage my property?
The frequency depends on your circumstances and your financial goals, but most households tend to remortgage at the end of a present deal.
However, you may want to consider remortgaging ‘midterm,’ i.e. part way through a deal, for debt consolidation or home improvements – such as adding an extension or putting a new kitchen in.
Just to add, remortgaging is not always the only option. You could also consider further advances or second charges. If there are penalties involved with a remortgage, it’s good to consider these.
It’s essential to carefully evaluate the costs, any charges and the benefits before proceeding. Speaking with a broker and checking that out is always good practice.
What are the main reasons why people choose to remortgage? What factors should I consider when deciding whether to remortgage?
Definitely at the end of a mortgage deal, and let’s review that early. Generally, I’d say six months prior is time to get organised.
You may want to remortgage for a different rate. Perhaps you’ve taken out a mortgage in the last couple of months when interest rates have been quite high. As you transition through the next couple of years, there might be some really appealing rate rates that come along that would lower your payments.
The next major factor is releasing equity. This is often done to fund home improvements, debt consolidation, or other significant expenses. Maybe there’s a family wedding to pay for, et cetera.
Another reason could be just to get more flexible terms but that will depend on weighing up the pros and cons.
What happens to my existing mortgage when I remortgage?
Effectively, your existing mortgage gets repaid upon completion. If you’re with lender X now and you remortgage to lender Y, Lender X’s deal will be paid off by your solicitor on completion. If excess funds were requested, they would then pass to you.
What happens if I don’t remortgage after my deal expires?
Let’s say you’ve been on a fixed rate mortgage for a couple of years. Typically, at the end of that two year period, you revert to the lender’s standard variable rate. This will go up and down, and it is quite a lot higher than what you’ve been paying previously.
That will very much increase your costs on a monthly basis. For most households, that’s ideally avoided.
Can I switch lenders when remortgaging?
Absolutely, yes. That tends to be what happens. You’re moving your mortgage from one lender to another to get a better deal. It involves paying off your current mortgage with the old lender and taking out a loan from a new lender on better terms and conditions.
Can I remortgage if I have bad credit? Can I remortgage to consolidate my debts?
Absolutely. Depending on the severity of any bad credit, mortgage brokers can generally find a solution, by finding lenders that can assist in your situation. It’s just a case of establishing what the situation is.
One reason for remortgaging can be debt consolidation. Lenders each have their own affordability checks to make sure that it works for their criteria and fits what everyone wants. But lenders don’t like to see debt consolidation done very often.
They may accept it the first time round, but if somebody’s frequently trying to remortgage for debt consolidation, they’ll get very nervous.
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Will I have to pay any fees or penalties when re-mortgaging?
Yes. It can be a little complex, but most mortgages will have early repayment charges within a fixed or a tracker rate period.
A new mortgage application may also incur arrangement fees, valuation, booking fees, et cetera. So it’s always good to check the penalties on your existing mortgage and fees on the new mortgage.
The good news is that lots of lenders will want your business and they may well be offering deals with no arrangement fee, free legals or cashback options. It’s just a case of having awareness of any fees so there are no surprises.
How much could I potentially save by remortgaging?
Savings depend on lots of different factors – such as current interest rates compared to when you took your deal out and indeed your existing mortgage terms. If savings are the key driver, get professional help to evaluate it – it’s so variable.
What documentation will I need to provide when remortgaging?
It’s very much the same as applying for a mortgage the first time around. It’s typically proof of income, bank statements, ID and proof of residency. If you’re self-employed, that proof of income is generally tax overviews and computations.
Will I need a new valuation or survey when remortgaging?
The new lender will want a valuation for their own peace of mind and their checks. It could be an online valuation, a drive-by, or a physical inspection. It depends generally on the Loan to Value.
Until a remortgage application is submitted, we never know quite what the lender will want, but they will definitely want some form of valuation.
Is it harder to remortgage if I’m self-employed or a contractor?
No, it shouldn’t be. Remortgages shouldn’t be any more complicated for the self-employed. The major point here is just proof of income. For contractors, it’s how long you have held a contract for and how many times it has been renewed.
Self-employed applicants usually need two years’ tax calculations and two years’ tax overviews to prove income. If you have those, it should be no more difficult to remortgage.
What happens if my property value has decreased since I initially obtained my mortgage?
It’s hopefully a situation not many people get into, but a remortgage should still be possible, provided there’s sufficient equity in the property.
It comes back to deposit levels. As long as there’s at least 5% equity in the property, a remortgage should be feasible.
What are the advantages and disadvantages of fixed rate versus variable rate remortgages?
With a fixed rate the interest rate will remain unchanged for a set period of time, give you a predictable monthly payment and peace of mind.
With a variable rate, the interest can fluctuate and monthly payments can vary. Types of variable product, as we’ve touched on previously, are trackers, discounted and standard variable rates. But variable rate pricing will go up and down depending on market conditions. Fixed rate gives you that certainty.
In choosing the best option, you’ve got to consider your financial situation and market conditions. Again, discussing these with a broker can really help you make an informed choice.
Can I remortgage if I’m nearing retirement age?
It depends how close you are, but potentially yes. Lenders will all have criteria regarding maximum ages for the remortgage and when the mortgage will be paid off. Key considerations are proof of your income, longevity of that income and the lender’s age restrictions.
But potentially it’s feasible. Again, it just needs reviewing to see which lenders can provide a solution.
How can a mortgage broker help? Have you got anything else you’d like to add?
In summary, we can help people be realistic with their expectations and compare remortgage deals versus other refinancing options. We compare and provide research so that you can effectively make informed choices.
As a broker, we’ve got access to the whole market and we’re independent. We’re not bound to a small panel. We can go out to a large panel of lenders and provide expert advice, and we do this all day, every day. Our support will generally save you time, effort and give you professional guidance.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
Our standard fee for arranging a mortgage is £395. The fee is due upon applying for a mortgage loan with the lender.