Quick Answer: To remortgage means to end your existing mortgage deal and replace it with a new one without changing your home. Remortgages in the UK happen mainly to get a lower interest rate, remortgage for home improvement, release equity, reduce monthly payments, and avoid moving to Standard Variable Rate (SVR).
A remortgage prevents higher monthly mortgage payments by not going in SVR.
When you remortgage, you end your existing mortgage altogether and move on to a new deal. You may do this with your current lender known as rate switch or find a new one. Many borrower always ask should I remortgage with same bank or find a new one. When you remortgage, you have a chance to find a better interest rate on fixed term or on tracker mortgage.
If you are a home owner and the fixed term is ending soon, this guide will help you understand the remortgage basics.
Understanding remortgage basics and costs
What is remortgage actually about?
Remortgage is different from buying your home for the first time. It is much simpler. You already own your property (or at least a part of it).
When you remortgage, with same bank or new one they just need to ensure that your new deal is worth their lending risk.
A remortgage deal in the UK generally focuses on three key checks:
- Your property’s current value
- Your affordability
- Your recent credit history
Your lender (current or new) will check these factors and see if you qualify for a new deal.
Most lenders (especially if you continue with the same one) do not require property revaluation and extensive credit checks or affordability.
If you switch to a new mortgage lender , be prepared for these additional steps:
- Property valuation: The new lender will check your property’s latest market value.
- Affordability checks: Keep documents like recent payslips, bank statements, monthly expense records, credit card bills, and financial commitments ready for these checks.
- Conveyancing: A new lender will require some legal work. A solicitor will transfer your mortgage from the old to the new lender. This process is usually free of cost.
Why homeowners remortgage (and when they should not)
The most common reason for remortgage is to get a better interest rate at the end of fixed term.
Once your fixed-rate period ends, there is always this uncertainty of staying on SVR which is a lot higher interest rate. Most homeowners do not want to take a chance and prefer to remortgage.
Some other common reasons for remortgaging are:
- Remortgage to releasing equity
- Consolidating debts
- Remortgage to reducing the mortgage term
- Switching between interest-only and repayment mortgages
- Removing or adding someone to a mortgage deal
However, remortgaging isn’t always an ideal option.
Here are the three main scenarios when you should approach remortgage with caution.
- If your property’s value has reduced and you are in negative equity (your LTV will go down)
- If the lender charges high early repayment charges
- If you are planning to move to a new property .
Always make appropriate calculations before taking any step.
Add all applicable early repayment charges, valuation fees, conveyancing costs, and broker fees (if any). Compare the sum total with the amount you can save after remortgaging.
Go ahead with your plan only if your savings are higher. If you need to wait for another 18 to 24 months before recovering your costs, it is better to wait a little longer before remortgaging.
Timing your remortgage decision
Remortgage isn’t automatic. Your lender isn’t likely to inform you when you should or shouldn’t switch to a new mortgage.
It is solely your decision. If you aren’t aware and alert, you will see yourself trapped in an SVR mortgage rate when your current fixed term ends.
Always plan ahead to avoid such surprises. Set a reminder for at least four months before your current mortgage’s fixed-rate period ends. This gives you enough time to compare mortgage lenders, secure a new mortgage rate, and complete legal processes before the term ends.
Moreover, seek professional help. Consult your mortgage broke and qualified financial experts before making up your mind. You can also ask your existing lender about their early repayment charges. If you are planning to remortgage with them, they may cut you some slack and offer favourable terms.
Always plan your next step well in advance to prevent last-minute panic. While remortgaging can help you save money, it can also cost you a lot more if you fail to make informed decisions. Speak to Fee Free Mortgage Broker to get started with your remortgage.
