How Does Remortgaging Work? Remortgaging Explained
When you remortgage, you take out a new mortgage deal on your existing property. This can help you find a better rate and even unlock equity.
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You did the hard work of getting a the best mortgage out there, but now you might be looking to the future and wondering what comes next. Whether your mortgage deal is coming to an end or you’re planning ahead to take advantage of better rates, understanding remortgaging can be an important part of securing your financial future.
But what is remortgaging and how does it work? Does it differ from your first-time mortgage application, and how can you make sure you’re getting the best remortgage deal? We’ve created this guide to help you understand the process and find the option that works for you.
Key takeaways
- Remortgaging means taking out a new mortgage deal.
- You should start thinking about remortgaging well in advance of your mortgage deal ending, or before making the final decision to switch.
- Remortgaging may be right for you if your current deal is coming to an end, or you want to take advantage of better rates. However, you should consider any exit, product, and solicitor fees associated with the remortgage.
- If your financial situation has worsened since taking out your original mortgage, you may face difficulties in remortgaging.
What is remortgaging?
Remortgaging, explained in simple terms, is when you take out a new mortgage deal on your existing property. Often, this is achieved by switching to a new lender, although you may also opt for a new product or deal from your original lender. You can do this when your current mortgage deal comes to an end or during its agreed term. However, it’s worth noting there may be fees to switch early.
What to know before you remortgage
If you’re considering remortgaging, there are some important things to know before you begin the process:
Start early
You should start thinking about your remortgage at least 6 months before the end of your current deal. This is because the remortgage process can take several months, and if you don’t pre-empt it, you may be automatically switched onto your lender’s Standard Variable Rate (SVR) when your deal ends. This is usually less favourable than new deals and can result in unnecessary costs.
Additionally, acting early can help you secure a lower rate if interest rates then rise. And if they go down, you can always switch to a different deal, although this may incur additional fees.
Know what you want
You’ll want to have a good idea of the type of mortgage you’re looking to switch to, i.e., a fixed-rate or a variable/tracker rate. Understanding if this is right for you means having an idea of what’s going on with interest rates—if interest rates are likely to go down, a tracker rate could work, as long as you’re okay with potentially fluctuating repayments.
Understand your position
Before applying, you should reassess your current financial position, including your debt levels and credit score, as these factors will play a role in determining whether you are accepted for your remortgage. Working with a mortgage broker can help you understand what deals might be available to you and how to navigate the application process.
How does the remortgaging process work?
So, is remortgaging easy? It’s very similar to your original mortgage process. To remortgage with a new lender, you will usually need to:
- Obtain an Agreement in Principle (AIP): This is sometimes known as a Decision in Principle (DIP). It tells you how much you can borrow from the lender, but it doesn’t involve a credit check and doesn’t guarantee acceptance.
- Double-check any applicable fees: Before you apply, it’s essential to understand any additional fees you may need to pay, such as product or solicitor’s fees.
- Complete your application: As with your original mortgage application, you’ll need to provide details of your past and current finances, including your employment status, debt levels, and recent transactions.
If you’re getting a new deal from the same lender (aka product transfer), then this will usually involve fewer checks on your finances, as they already have proof you can meet the requirements.
Advantages of remortgaging
Remortgaging can help you:
- Find better interest rates: If you’ve been locked into a particular rate but the market has changed, this is your opportunity to get a better deal that will save you money in the long run.
- Change the terms of your mortgage: You may also decide to adjust the terms, such as the repayment period. This could lower your monthly payments.
- Switch your mortgage type: You could switch from a fixed to a tracker mortgage, for example, if you want to take advantage of falling interest rates.
- Get a new lender: A new lender might have better customer service, more digital support, or other products you’re interested in.
- Release equity: If you need an injection of cash, remortgaging can unlock some of the value from your home if its price has risen over time. This can provide you with a useful lump sum.
- Increase mortgage flexibility: If you want to overpay without incurring fees, have the option to switch to an interest-only mortgage, or take a payment holiday at some point, consider changing lenders or products to gain more flexibility.
Disadvantages of remortgaging
There are some downsides to remortgaging, including:
- Early repayment charges: If you remortgage before the end of your original mortgage deal, you may incur charges for swapping.
- Additional fees: You may incur extra fees, including your lender’s product fee.
- Higher costs: Higher mortgage costs could come from fixing at a market peak (thereby settling on an expensive interest rate), switching to a tracker mortgage if interest rates rise, or increased repayments if you release equity from the property.
Is remortgaging right for me?
The most obvious reason to remortgage is when your current mortgage deal comes to an end. You may also want to consider it if you’re looking for a more flexible deal, you want to change your mortgage type, or interest rate changes make it beneficial to get a new rate, even with fees included.
If your home’s value has risen significantly and you want to release some equity, remortgaging can also be a route to this (although it's worth weighing up the cumulative interest cost against taking out a normal, shorter-term loan).
Remortgaging probably isn’t right if you need to pay high exit fees, you don’t have much mortgage left to repay, or your financial situation has changed dramatically to the point where you might struggle to get accepted.
FAQs
Can a remortgage be declined?
Yes, your lender can decline your application for a remortgage. This could happen if there are concerns about affordability—for example, your financial situation isn’t strong enough to demonstrate that you can make repayments, or you’re applying for a large or high-risk loan.
Can I remortgage with bad credit?
As with taking out your original mortgage, it can be more challenging to remortgage with bad credit. A new lender will evaluate your financial situation, including debt levels and credit score. Although there’s no minimum credit score, a low score may harm your chances. However, some lenders may offer mortgage options specifically designed for borrowers with bad credit.