How Does Remortgaging Work?

What is Remortgaging?

Remortgaging is when you look to move from one mortgage deal to another, either staying with your existing lender or moving to a new one. As the years go by, you don’t necessarily have to stay on the same mortgage as the one you initially took out, as your personal circumstances will change over time, giving you reasons to remortgage.

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Why People Choose to Remortgage and Is It for You?

It’s always important to review your finances from time to time, consider your options and know that you’ve got a mortgage that fits your individual circumstances and needs. 

Much like renewing your car insurance or shopping around for a good broadband deal, there will often be other mortgage rates out there that may be more suitable for you, and the process of changing this is called a remortgage. 

Some additional reasons that many choose to remortgage:

• Taking advantage of lower interest rates
• The current fixed-rate mortgage deal is up for renewal
• Looking to move from an interest-only mortgage to a repayment mortgage
• Looking to be able to make overpayments
• Seeking to borrow money for projects such as house renovations 

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Many mortgages will have an initial period of fixed rates, which generally expires after either 2, 3 or 5 years, after which you would revert to a Standard Variable Rate (SVR) and end up paying a higher rate than you previously enjoyed. This is one of the most common reasons homeowners choose to seek a remortgage - so if this sounds like you, then it may be time to consider it.

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Getting Ready to Remortgage

The remortgage process typically takes around 4-8 weeks for completion from after you apply. Therefore, to get ready for that, you need to check how much you currently owe on your existing mortgage. You can either do this yourself using the documentation supplied by your lender, or we would be able to help you with this as part of the advice we give. 

• Plan ahead - allow up to six months for a remortgage to take place, this gives adequate time to undertake research and decision making for what you’re looking for alongside the process of applying for a remortgage itself.
  
  
• Plan your finances - just as for applying for your first mortgage, it pays to make sure your finances are truly in order. Check your credit score, don’t apply for any new credit, avoid any large purchases, and avoid any payday loans or overdrafts at all costs to boost your chances of quick acceptance for a remortgage.
  
  
• Plan for the application - much as for your first mortgage, the remortgage process normally requires presentation of a range of documents to prove income and identity, so it is wise to have your documentation in order and ready for when your mortgage adviser or lender requests it, to allow your application to proceed without delay.
  
  
• Self-employed applicants - required to provide additional proof of income, with up to three years history. The ability to show future workload and incoming revenue stream will aid your application, alongside a good credit score. 

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How Does the Remortgage Process Work?

The remortgaging process is not an easy one, but because you’ve done the prior work to the actual application, it’ll be much easier. So here are the exact steps you need to take to actually remortgage your home:

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1. Knowing How Much You Can Afford

Working out your income and outgoings to find out how much you can afford to pay each month on a mortgage. Also, making sure you have the additional funds for all the added costs associated with moving place such as:

• Conveyancing costs
• Potential mortgage advice from professionals
• Application fees
• Solicitor fees
• Valuation costs
• Many more

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2. Looking at Your Remortgage Options

As we discuss in the section below, there are a few types of remortgage options available, so using a mortgage calculator to see what mortgage payments will suit you and your financial situation will give you a brief outlook of a baseline you can afford to pay each month.

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3. Applying for an ‘Agreement in Principle’

If you’ve found a few mortgage options that suit your needs and situation, the next step to take is applying for an ‘Agreement in Principle’ (or ‘Decision in Principle’), as this will give you an exact figure on what you can afford to borrow each month with your new mortgage. 

This way, the lender can offer you the right amount based on a soft credit check. Please note, this will not affect your credit score for the final application.

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4. Apply for the Remortgage You Want

If you’re satisfied with the numbers that the lender has given you, and you’re happy to go ahead with the remortgage offer they proposed, you can now apply. Whether it’s done in person, online, or in your branch, it can be done in any way. Here, you will have a hard credit check and documentation you’ll need to provide, as this is necessary for a mortgage application.

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5. The Legal Paperwork

Whether you get the choice to choose your own conveyancer/solicitor or the lender appoints one to you, there will be some legal paperwork involved that you need to complete. For example, transferring the funds, mortgage deed, and some other contracts.

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6. Valuation 

Your lender will also go to the property you want to move into and also see if it’s suitable for a mortgage, because it’s an investment on their front too, so they want to make sure it’s worthy.

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7. Review the Offer 

Once the lender has confirmed that your new property is suitable for a mortgage and you’ve completed your application fully, they will then send you an offer to review and accept. Make sure to read this thoroughly before accepting.

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8. Complete Your New Remortgage 

Once all this is done, your conveyancer will then arrange for the funds to be transferred. You will be given a completion date and this will be when your new mortgage starts and your old one is paid for. You’ll be given a date of your first mortgage payment. 

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Choose a Remortgage Product That Works for You

There are a few choices you can make when selecting new mortgage products. We list some key details below. Please do speak to us for more information and a full explanation of what each option means and how it can work for you.

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Option #1 - Product Transfers

Sometimes, if you don’t wish to borrow any more money and are simply looking for a ‘like-for-like’ mortgage on a new rate, then you may be eligible for a ‘product transfer’.

This is where your existing lender can offer you a range of alternative mortgage products to choose from in place of your existing deal. The benefits of this route are that it’s often simpler and faster to change products with the same lender.

However, the downside is that it’s not always clear that you are getting the most suitable deal, so it would be valuable to take professional mortgage advice to assess your individual needs and circumstances.

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Option #2 - Repayment Mortgage or an Interest-only Mortgage?

The first two options you have are:

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Repayment Mortgages

A repayment mortgage allows you to pay off the original sum, plus a portion of the interest each month, whereas an interest-only mortgage lives up to its name - with you paying just the interest for that period, and not the original sum borrowed, which still needs to be repaid after the mortgage term is completed.

Lenders often need solid reassurance that you have a plan in place to repay an interest-only mortgage, so they tend to be harder to obtain than a repayment mortgage. Relying on savings, future work bonuses, or inheritance is risky and not enough to reassure many lenders. 

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Interest-only Mortgages

Interest-only mortgages are more commonly used in buy-to-let or property development investments, with a clear business plan put in place. 

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Option #3 - Fixed-rate or Variable-rate Mortgage?

The other two types of mortgages you can apply for are:

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Fixed-rate Mortgages

As implied, a fixed-rate mortgage is tied to a specific interest rate, set out at the time the mortgage was established, and is fixed in place for a pre-determined period, whether that’s 2 years, 3 years, 5 years or potentially longer. 

The benefit of a fixed-rate mortgage is the fact that it does not change for that period, so it’s great for planning, stability and peace of mind around fixing your costs for a certain time ahead. 

Interest rates can fluctuate, dependent upon the state of the economy and a wide range of external factors feeding into it, so by their nature can be varied over time. If you have a fixed rate mortgage set when interest rates were generally low, then you would be protected against any sudden rises in bank interest rates and can continue paying the same repayments each month. 

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Variable-rate Mortgages

Conversely, variable-rate mortgages broadly follow bank interest rates, moving up and down over time following global events and economic activity. This means that where we have seen unprecedentedly low interest rates in recent times, your variable rate mortgage repayments will be low to reflect this. However, should these start to rise again, your monthly repayments will rise alongside this. 

Within variable-rate mortgages, there are different types. A ‘Tracker’ mortgage will follow the Bank of England interest rate exactly, whilst a ‘Standard Variable Rate’ (SVR) can be a few percentage points above the Bank of England interest rate. 

There could also be opportunities to apply for discounted rates where lenders offer a few percentage points discount from the SVR for a pre-defined period of time. Finally, there are hybrid options of capped mortgage deals, variable rates, but with caps to ensure the interest rate doesn’t fluctuate past a certain point. 

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Is there Anyone Who Shouldn’t Remortgage?

For those seeking to remortgage as a means of saving money or to get a better deal, be aware that for some, it is not always in their best interests, and sometimes your existing mortgage deal may be better than what you can find out there now. It all depends upon money, timing and personal circumstances. 

• You already secured a great deal at the time
• Your existing mortgage locks you in 
• You own less than 10% of your property
• Your equity has shrunk
• Your circumstances have changed
• You have a poor credit history
• You have a very small mortgage 
• You are very close to the end of your mortgage term

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For those reasons, it pays to do some research into your current mortgage terms, to examine whether you are best off not making any changes unless your circumstances make it essential to do so. 

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How Long Does Remortgaging Take?

In regards to how long remortgaging takes, it typically takes anywhere between 4-8 weeks, but in some cases, it can take longer. This length of time depends on how prepared you are coming in, how long the lenders take with your credit check, and how long it takes for them to decide whether the new place is suitable for you. 

There are a lot of moving parts, so it’s not just a straightforward timeline, unfortunately. However, if you can prepare and provide the lenders with this information quickly, you’ll be doing the most you can on your part:

• Your identity (passport or driving license)
• Your income and outgoings (for the last 3 months)
• Proof of address (utility bills, credit card statements, etc)

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Seek Professional Advice

We’re ready to assist you in finding a new mortgage - with so many different deals available and lots of intricate elements to take account of, it makes sense to book an appointment with us to guide you on the next steps. We have access to thousands of deals from across numerous different lenders, many with exclusive rates you may not otherwise be able to find. 

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

There may be a fee for mortgage advice.