We've rebranded! Formerly known as Green Mortgages
We've rebranded! Formerly known as Green Mortgages
Remortgaging is a term that everyone will have heard of, but what does ‘remortgage’ actually mean? In the simplest terms, it is the process of switching your current mortgage to a new deal.
Many homeowners typically choose to remortgage when their current fixed-rate deal is ending, as this can help them avoid being moved onto a lender’s Standard Variable Rate (SVR), which tends to be more expensive. Other homeowners remortgage to secure a better interest rate, reduce monthly repayments, release equity from their home, consolidate debts or to change the length of their mortgage term.
The remortgaging process typically involves reviewing your current mortgage against new deals, applying with a lender, completing both affordability and credit checks and arranging a property valuation before the new mortgage replaces the old one. Depending on the lender, the complexity of the proposed application and the ready availability of the right information, the process can take several weeks to complete.
Our experts have compiled this guide to explain how remortgaging works, the benefits and potential risks involved, what costs you can expect and how to decide whether remortgaging is the right option for you.
Remortgaging means replacing your existing mortgage with a new one, either with your current lender or a different provider altogether. Homeowners will typically remortgage when their current deal is ending or when they want better terms. It can involve borrowing the same amount or changing the loan size, depending on your needs, options or financial plans.
This process differs from simply switching mortgage products with the same lender, which instead, is known as a product transfer. This is because of what happens when you remortgage. A full remortgage tends to involve affordability checks, legal work and more often than not, moving to a completely new lender. The goal is usually to secure a more suitable interest rate, repayment structure, contract length or borrowing arrangement.
There are several financial reasons to remortgage, and it is often done to improve mortgage terms or reduce costs. One of the most common reasons is securing a lower interest rate, which can reduce monthly repayments and the overall borrowing costs required. Some homeowners remortgage to release accrued equity from their property for home improvements, large purchases or other expenses.
Others use remortgaging to consolidate existing debts into a single, more manageable monthly payment. It can also help borrowers move from a variable-rate mortgage to a fixed-rate deal for more predictable payments. There are also cases where remortgaging has been used to shorten or extend the mortgage repayment term.
Step 1: Review Your Current Mortgage
Start by checking your current mortgage deal, including the interest rate, remaining balance and when the deal expires. It’s also important to review any early repayment charges or other potential exit fees that could apply if you switch before the end of your current term. Making sure that you understand these costs helps determine whether remortgaging is worthwhile.
Step 2: Compare Remortgage Deals
The point of a remortgage is to get a new and potentially improved deal, so just like with choosing your home, it pays to shop around to find the ideal one with the ideal features for you. By looking and comparing interest rates, arrangement fees, repayment terms and other incentives will put you in a better position to make this decision. Taking this extra time can help you find a deal that both saves you money and aligns with your financial plans.
Step 3: Apply for a New Mortgage
Once you choose a remortgage deal, you’ll complete a mortgage application with the lender. This involves affordability checks, proof of income, bank statements and other specified identification documents. The lender will also review your credit history and financial commitments to assess whether you meet their lending criteria before approving the application.
Step 4: Property Valuation and Legal Work
Part of this process involves getting a new property valuation on your home based on the current market value. This is required for ensuring that the mortgage amount is suitable. Once this has been assessed, there will then be both legal and conveyancing checks to merge the transfer from the original mortgage to this new one.
Step 5: Completion and Mortgage Switch
Once the legal work has been completed and your new mortgage deal has been approved, your new lender will pay off the balance on your existing deal directly. This is when your new arrangement will begin, where you start making payments to the new lender and the remortgaged deal.
Once you know what remortgaging does mean for your current and future financial position you now need to know what happens once it takes place. After approval, the new lender will pay off your existing deal. It is at this point when your new payments will start and your remortgaged deal becomes “active”. If you have remortgaged with the intention of releasing equity from your home then you will typically need to wait four to eight weeks before receiving the funds.
Depending on your circumstances found through the preliminary checks of the remortgage deal, it can offer homeowners several financial benefits. Opting for a new or different mortgage deal can allow you to secure a better interest rate that lowers the overall borrowing cost by lowering the monthly payment amounts. It can also be used to release some or all of the built-up equity in the property for debt consolidation, large expenses or home improvements.
Although there are many avenues where remortgaging can save money, there are potential costs and risks that must be considered, too. Leaving your current mortgage early may trigger early repayment charges or exit fees. You may also need to pay arrangement fees, valuation costs or legal fees depending on the lender and the mortgage deal.
Extending the mortgage term can seem like a great plan if it reduces monthly payments, but this will then increase the total amount of interest paid over time. If you are consolidating debts through remortgaging, those debts then become secured against your home, which will then put your property at risk if future repayments are missed.
In regard to the lenders, what happens when you remortgage? During the assessment of your application, lenders will review your financial situation to determine whether you can comfortably afford the new mortgage. This involves checks on your income, employment status, all monthly expenses, your credit history, your loan-to-value (LTV) ratio and any existing financial commitments.
Lenders will use your credit history to assess your reliability and repayment behaviours and your LTV to compare your balance against the value of your property. Remortgaging can be a highly advantageous process, but can be confusing to navigate. Contact the Proper Advice experts for further guidance on this process and get your free remortgage quote today.
Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage.
