For most homeowners, their mortgage is their single largest monthly expense. Yet, millions of people in the UK are potentially paying hundreds, or even thousands, of pounds more than they need to every year. How? By not remortgaging when their introductory deal ends.
Remortgaging is one of the most powerful financial tools available to a homeowner, but it is often misunderstood. This guide will demystify the process, explaining what it is, why you should do it, and how to go about it.
What is Remortgaging?
Remortgaging is the process of switching your existing mortgage to a new deal, either with your current lender (known as a ‘product transfer’) or with a new lender. You are not moving house; you are simply replacing your current mortgage on your existing property with a new one.
The primary reason for remortgaging is to save money. When you first take out a mortgage, you are usually on an introductory deal, such as a 2- or 5-year fixed rate. When this deal ends, your lender will automatically move you onto their Standard Variable Rate (SVR).
A lender’s SVR is almost always significantly higher than the best deals available on the open market. Sitting on an SVR can cost you a huge amount of money in extra interest payments.
Top Reasons to Remortgage
While saving money is the main driver, there are several other excellent reasons to consider remortgaging:
1. Your Introductory Deal is Ending
This is the most common and critical reason. You should start looking for a new mortgage deal around 6 months before your current deal is due to expire. This gives you plenty of time to find the best rate and complete the process without ever falling onto the expensive SVR.
2. You Want a Better Interest Rate
If interest rates have fallen since you took out your mortgage, you might be able to find a much cheaper deal elsewhere, even if you have to pay an Early Repayment Charge (ERC) to leave your current deal. A mortgage advisor can do the calculations to see if this makes financial sense for you.
3. You Want to Borrow More Money
Remortgaging is a very common way to raise capital for major expenses by releasing some of the equity you have built up in your home. Common reasons include:
- Home Improvements: A new kitchen, an extension, or a loft conversion.
- Debt Consolidation: Paying off higher-interest debts like credit cards or personal loans.
- Major Life Events: Helping to fund a wedding, university fees for children, or the deposit for an investment property.
4. Your Property’s Value Has Increased
If your home has significantly increased in value, your loan-to-value (LTV) ratio will have decreased. LTV is the size of your mortgage in relation to the value of your property. A lower LTV often unlocks access to much better and cheaper mortgage deals.
5. You Want to Change the Type of Mortgage
You might want to switch from a variable rate to the security of a fixed rate, or you may want to change the term of your mortgage (e.g., reduce it from 25 to 20 years to pay it off faster).
The Remortgaging Process: A Simple Guide
The good news is that remortgaging is usually much simpler and faster than getting a mortgage to buy a new house.
Step 1: Speak to a Mortgage Advisor (6 months before your deal ends) An advisor will review your current deal, assess your financial situation, and search the entire market to find the best new deal for your circumstances.
Step 2: The Application Once you have chosen a deal, your advisor will handle the application for you. You will need to provide documents such as payslips, bank statements, and ID.
Step 3: The Valuation The new lender will need to value your property to confirm its worth. For remortgages, this is often a simple ‘desktop’ valuation done online, and many lenders offer this for free as part of the deal.
Step 4: The Legal Work A solicitor is needed to handle the legal transfer of the mortgage. Again, many lenders offer free legal services as an incentive to remortgage with them.
Step 5: The Mortgage Offer and Completion Once the lender is happy with the valuation and your application, they will issue a formal mortgage offer. Your solicitor will then arrange for the new mortgage to complete on the day your old deal expires, ensuring a seamless transition.
Remortgaging is a proactive financial decision that can have a huge positive impact on your finances. By planning ahead and seeking expert advice, you can ensure you are always on the best possible deal, freeing up money that can be used to improve your lifestyle or achieve your future financial goals.
