How Does Remortgaging Work?

What is a remortgage?

A remortgage is where you move your existing mortgage to another, either with your current mortgage lender (known as a product transfer) or by switching to a new lender offering a lower interest rate and more suitable terms. Remortgaging can also help release money tied up in your property.  

Remortgaging is very common during the life of a mortgage. It’s an ideal opportunity for you to look at what interest rates are available and find the best terms that suit your needs in the same way you would when your car insurance is up for renewal or if you want to change providers for your utility bills. 

Many homeowners also see it as the perfect time to borrow more money by releasing some of the equity in their property to help pay for large purchases such as a new car, home renovations or to consolidate all their debts into one manageable monthly payment. 

Once your current mortgage deal ends, the interest rate on your repayments will move on to your lender’s Standard Variable Rate (SVR). The SVR is usually higher than what you’d pay on all other types of mortgage deals - Fixed-Rate, Variable-Rate, Tracker Rate, etc. - so it makes sense to find another deal as soon as possible. 

Do you need a deposit to remortgage?

No, usually, when it comes time to remortgage, the existing equity in your property should be enough to cover the lender’s requirements without an additional deposit. 

Equity is the difference between the value of your property and the current outstanding balance on your mortgage. For example, if your house is worth £400,000 and your mortgage balance is £250,000, the equity available is £150,000. 

When to remortgage 

There are several times when remortgaging is both beneficial and the right thing to do, such as: 

• Your existing mortgage deal has come to an end. As already mentioned, this is the most popular reason people remortgage and avoid moving on to their lender’s SVR for any longer than necessary.

• You need to borrow more money. If the value of your property has increased significantly since you first took out your mortgage, you can release some of this equity by borrowing more money when you remortgage.

• Your current interest rate is too high. If interest rates peaked when you first took out your mortgage and have since come down, you can remortgage to a cheaper rate rather than waiting until your current deal ends. You need to check whether you’ll incur a hefty early repayment charge if you break the terms of your existing deal and weigh up whether the savings on your new repayments will outstrip any exit fees you have to pay.  

• You want to change the terms of your current mortgage. If your personal circumstances have changed, you might want to alter either the existing term of your mortgage or the repayments. So, for example, if you’ve changed jobs and now earn a higher salary, you might want to overpay to reduce the number of years on your mortgage, but your existing deal may not allow for this. By remortgaging, you can change the terms of your mortgage to better suit your new circumstances. 

Can you remortgage at any time?

Yes, technically, you can change from your current mortgage deal to a new one whenever you like. But if you still have several years left on a fixed-term mortgage deal, this would likely mean you’d have to pay a larger early repayment charge to remortgage. 

If it costs more to move your mortgage than it does to stay put, unless other circumstances are driving your decision, the right conclusion would be to remain with your current mortgage lender. 

It might also be inappropriate to remortgage if your existing home loan only has a few years left to run (say, less than five years) and the balance remaining is relatively small (less than £25,000). At this stage, you may find accepting your existing lender’s terms more beneficial than incurring additional fees by moving to a new lender. 

How long does it take to remortgage?

It usually takes between 4 to 8 weeks for a remortgage application to be processed and approved by a mortgage lender. This may vary from lender to lender and will depend on whether you’re looking to borrow more money or make any changes to the terms of your existing mortgage. 

A straightforward product transfer with the same mortgage lender can be done within days. In most cases, switching to another lender to move on to a better interest rate and no further borrowing requirements should only take up to 4 weeks. 

If you’re releasing equity from your property, this may take up to 8 weeks to complete. Further complications can occur if you’ve had any bad credit issues since first taking out your mortgage. In such instances, it’s wise to speak first with a mortgage broker before approaching a lender directly. 

If you make an enquiry we’ll arrange for one of our Mortgage Experts to speak with you directly regarding your remortgage needs and to get the process started for you. 

Getting ready to remortgage

It’s generally recommended that you start thinking about your remortgaging options and the process involved around three to six months before your existing deal expires. This will give you plenty of time to look at the different mortgage deals available and find one that suits your circumstances. 

To make sure you’re ready to remortgage, it’s important to consider the following aspects in advance: 

• What you want from your new mortgage. Are you looking to remortgage purely to get the best interest rate available, or do you want to release some money from the equity within your property? Do you want more flexibility to overpay and reduce the mortgage term? 

• What type of mortgage deal are you looking for? Would you prefer a fixed-rate deal so you’ll know exactly how much your repayments are every month, or would you prefer to take a risk that interest rates could fall in the future? If so, a variable or tracker rate would be more suitable. 

• How much you want to borrow. If you’re remortgaging to release equity and have a specific reason for doing it - new car, home improvements, etc. - now is the time to work out the amount you’ll most likely need to borrow. 

• Work out your current loan-to-value ratio. The lower your loan-to-value (LTV), the better your chance of getting the most competitive remortgage deals. You can work out your LTV by dividing your outstanding mortgage by your current property value and multiplying this figure by 100. For example, if your property is worth £300,000 and you owe £150,000, your LTV is 50% (150,000 / 300,000 x 100 = 50). 

• Cost of remortgaging with a new lender. Before you decide to switch, review your existing mortgage paperwork to ensure there’s no charge for moving your mortgage and check what fees apply (if any) with your new lender. 

• Check your credit score. It’s worth downloading your credit reports well before your existing mortgage deal ends to ensure your credit history is clear. This also gives you time to correct any inaccuracies or remove incorrect/outdated information that could be affecting your credit score. 

• Speak to a mortgage broker. Rather than trying to work your way through the remortgage process on your own, why not let an expert help you? An experienced mortgage broker will also know of remortgage deals not generally advertised to the general public and only available through an intermediary. 

If all of the above feels quite daunting - don’t worry! Our mortgage team arrange remortgages for people all the time and are ready to help you find the most suitable deal for your circumstances. Just make an enquiry to get started. 

Remortgaging explained - how the remortgage process works

Remortgaging is similar to taking out a new mortgage and involves several steps to complete the process. 

If you’ve already spoken with a member of our mortgage team, and have found a remortgage deal with a new mortgage lender that suits your requirements, they will be able to guide you through the following process from start to finish, as smoothly as possible. 

• Prepare your paperwork in advance. When remortgaging with a new lender, you’ll need to provide them with personal and financial information, such as: 

  • Proof of income (last three payslips if employed or previous three years certified accounts if self-employed) and latest P60 tax form*

  • Proof of I.D - driving licence/utility bill with your name and address/passport

  • Last three months' bank statements

• Apply for a Decision In Principle (DIP). This isn’t a guarantee you’ll get approved for your remortgage, but it gives you an indication that your new mortgage lender is willing to approve the lending, subject to further eligibility checks. It also won’t affect your credit score, as only a soft credit check is conducted at this point. 

• Mortgage application. Once you have your DIP, you can submit your application to the new mortgage lender, along with all the required financial and personal documents (outlined above). 

• Appoint a solicitor. Although you’re not moving properties, you’ll need to appoint a solicitor to handle all the conveyancing work required to switch your mortgage from one lender to another. Your solicitor can also manage all the administration involved with the transfer of funds and ensure your new mortgage amount is enough to repay your existing lender. 

• New lender’s valuation and final offer. Your new lender will want to conduct their own valuation of your property. When completed and deemed satisfactory, they will then send their final offer for you to accept. 

Once this has all been agreed and all the conveyancing work has been finalised, you’re ready to complete your remortgage with your new lender. They will then let you know when your new mortgage repayments will begin. 

Remortgage costs

When you remortgage with a new lender, it’s important to be aware there’ll likely be several fees which apply and will need to be paid before you can complete the process, such as: 

With your existing lender: 

• Early Repayment Charge (ERC). This will ONLY apply if you break the term of an existing mortgage deal. An ERC is typically between 1% and 5% of your mortgage balance. 

• Administration / Deeds release fee. Your existing lender may charge a fee for holding and releasing your deeds, usually between £250 and £300. 

• Mortgage Exit Fee. Can be between £50-£60 and is charged for closing your mortgage account. 

With your new lender: 

• Arrangement fee. Some mortgage deals come with an arrangement fee, which can vary between each lender and product. If your new remortgage deal includes a fee, on average this could be anything up to a maximum of £2,000. There is usually an option available to add this fee to your mortgage, but bear in mind this will also incur interest.

• Booking/Reservation fee. This may be charged to reserve a specific remortgage deal and could typically be between £100 to £300. 

• Valuation fee. This can vary from lender to lender but on average could be between £200 to £500. Some mortgage lenders will offer a free valuation fee as an incentive for switching your mortgage to them. 

• Legal fees. Will depend on which solicitor you choose for your conveyancing, but will usually be between £300 to £500, depending on the complexity of the application.  

In addition to the above, if you decide to use a mortgage broker there will also be a fee for their services. This will vary from broker to broker but is usually either a flat fee or a percentage of the mortgage amount. 

At Haysto, our fee is only payable once your offer has been received and you wish to proceed with your remortgage, with only a £99 (refundable) commitment fee required upfront.   

Alternatives to remortgaging

If remortgaging isn’t a viable option for you, but you still want to explore other options offering the chance to borrow more money, the main alternatives would be: 

• Second Charge Mortgage***. Also known as a secured loan, this type of borrowing is basically (as the name suggests) a second mortgage taken out using the equity in your property as security. This would be a separate home loan in addition to your first mortgage. The amount you can borrow for a second charge mortgage will depend on how much equity your property has, less the amount of your first mortgage. 

• Personal loan. If the amount of additional borrowing you need is less than £25,000, a personal loan could be a good alternative. The term for a personal loan would be shorter than for a remortgage, which will likely make the monthly repayments higher but also means it will be cheaper because you’ll pay back less interest overall. 

• Equity Release Scheme**. Also known as lifetime mortgages, these schemes are only available if you’re over 55 and allow you to release equity from your property without making regular repayments. The interest typically rolls up and is repaid when the property is sold after you die or move into residential care. 

Can you remortgage with bad credit?

Yes, it’s possible. It all depends on the type of bad credit issue you’ve had, how long since it occurred, and the amount involved. Remortgaging with bad credit is similar to getting a mortgage in the first place. Choosing the right lender could make all the difference. 

That’s why it’s wise to speak with a bad credit mortgage broker first rather than applying directly to a high street bank. They can help you find a specialist mortgage lender who will look more favourably on your application. 

Can you remortgage an interest-only mortgage?

Yes, you can. Regardless of the type of repayment method you have - either interest-only or capital and interest - you’re still free to look at remortgaging once your existing deal ends. For interest-only mortgages, this means your interest payments could be reduced by moving onto a lower rate. 

As the name suggests, with an interest-only mortgage you only pay the interest element of the loan each month and the capital amount is repaid in full at the end of the term. But, this still means you can remortgage to a different lender if they’re offering a better deal. 

If you’re concerned that the repayment vehicle you have in place to cover the capital element of your interest-only mortgage, a remortgage is also a good opportunity to consider switching to a repayment mortgage.