Your mortgage repayments are probably your biggest monthly outgoing, and with lenders starting to hike rates, you don’t want to be paying over-the-odds. So, it’s important to bag the best mortgage rate you can if you’re remortgaging. If the numbers confuse you then this remortgaging guide will help.
We are currently seeing the best mortgages rates ever with interest fees hitting a historic low. However, it pays to get your skates on, as you never know when the freeze will thaw! So check out our remortgaging guide below for everything you need to know.
The remortgaging guide
What is remortgaging?
It’s simply the process of shifting your mortgage from one deal to another, either with your existing lender or a different one.
You’ll typically remortgage when your current deal ends to keep repayments as low as possible. If you don’t take action, you’ll move onto your lender’s standard variable rate (SVR). These rates currently average around 4%, which is far higher than the rate on new mortgage deals, so you’ll find your repayments suddenly shoot up.
You may also remortgage to borrow a larger amount using the equity inyour property to fund home renovation projects, say, or wipe out other debts. Mortgage rates are usually cheaper than other forms of borrowing, such as credit cards or personal loans.
How does the remortgaging process work?
It’s generally a relatively simple process. Use a broker as a remortgaging guide (more on their benefits below). Start looking on comparison sites to check rates around three to six months before you want your new deal to start. This gives you plenty of time to go through the process, and lock into a new deal.
Jo Thornhill, mortgages expert at MoneySuperMarket, says: 'Identify the right deal for you and then make your application through your broker, or directly through your chosen lender. The new lender completes a valuation to check the property is sufficient security for the loan, and many deals offer valuations for free.'
The lender will also assess your financial situation, and if it is happy to go ahead, you’ll receive an offer. Finally, your mortgage will be legally transferred, and your new mortgage account opened.
When is remortgaging the right move, and when isn’t it wise?
Remortgaging is generally the right move if your deal is coming to an end. And, if you’ve now got a big chunk of equity in your home, you’ll be in a great position to get a competitive deal. The best deals are for homeowners looking to borrow 60% or less of their home’s value.
Beware that if you remortgage before your current deal ends, you’ll most likely face early repayment charges (ERCs). ERCs can be hefty, and are usually charged at between 1% to 5% of your remaining mortgage balance. So if you’ve got a £250,000 mortgage, the penalty could amount to an eye-watering £12,500.
If you’re sitting on the SVR, it’s generally wise to remortgage. However, there are a few scenarios when staying put makes sense. For example, if you’re in the middle of moving house, sticking with a penalty-free SVR may be best, or you may face penalties for moving to another deal.
How much can remortgaging save you?
If you switched a 25-year £200,000 repayment mortgage from an SVR at 4.41% to a two-year fixed-rate at 2.29%, you’d save a hefty £5,405 over two years, according to financial analyst Moneyfacts.co.uk.
The number of new mortgages has continued to grow, despite recent increases in rates. Average two-year and five-year fixes remain low at 2.29% and 2.59% respectively, says Moneyfacts. 'But compare the different options and factor in the whole package, including fees,' stresses a spokesperson.
How can you check eligibility?
Chances are, you’ll be eligible for your current lender’s deals. Going down this route can also speed up the remortgaging process. Your lender may offer a simple ‘product transfer’ to switch your mortgage to a new deal, and keep your business.
By sticking with your existing lender, you may avoid paying mortgage fees too, potentially saving thousands of pounds. You also avoid going through the entire financial assessment process. If your circumstances have changed for the worse since you took out your last mortgage, this could be useful.
But remember, there are thousands of deals on the market, and you want to pay as little as possible for your mortgage. So, check what deals you may be eligible for on the open market, too, by speaking to an independent mortgage broker.
How can you prepare for remortgaging?
Securing any mortgage comes with admin. As part of the process, your credit history will be checked. This shows how you’ve dealt with previous debts, so it’s worth seeing where your score stands. You can check your credit report for free at agencies such as Clearscore and Experian.
Think about your outgoings, too, as lenders will look at these carefully when they do their ‘affordability assessment’. Bear in mind that your finances will also undergo a so-called ‘stress test’ to check you can afford repayments if interest rates rise by as much as 7%.
What is the benefit of using a mortgage broker, and how can you find one?
You shouldn’t automatically go with your current lender’s offering, unless you have to, particularly if you’ve got a large amount of equity in your home. But the mortgage market is constantly changing, which can make choosing and comparing deals a tricky process. A broker will make an excellent remortgaging guide. They have up-to-date, professional knowledge and will speed up the process.
You won’t usually be charged a fee for arranging a call with a broker. They can help you find the best rate and type of mortgage for you, so it can be a really useful process. For example, you may want to consider an offset mortgage if you’ve substantial savings, but don’t know where to start.
Brokers will negotiate with lenders on your behalf, and speed up the application process. Some deals are exclusive to brokers, too, and you want to make sure you have all your options.
Some large brokers include L&C, and Habito, and you can also search Unbiased.co.uk to find a local one if you wish.