If you’ve been with the same lender for several years, you may be able to save money by remortgaging – find out how.
Remortgaging happens when you change the mortgage you currently have on your property, either by switching it to a new lender, or by moving to a different deal with your existing lender.
When your current mortgage deal ends, you’ll be put on the provider’s standard variable rate – SVR – which is usually uncompetitive. So before that happens, it’s a good idea to look at what other deals are available and think about remortgaging to a deal with a better interest rate.
If you’re on a variable rate mortgage and your payments are increasing because of the Bank of England’s base rate rise, it could be worth remortgaging to a competitive fixed rate deal to give you peace of mind.
Just check you don’t have to pay any early repayment charges for getting out of your mortgage early.
Sometimes homeowners remortgage to release equity from their property. But you will need to make sure you’ve factored in all the fees that come with remortgaging and make sure you’ve looked at other borrowing options before making a decision.
Your lender is likely to ask why you need the money before agreeing to a remortgage, and common reasons include making improvements to your property or paying off other outstanding debts.
If you’ve inherited some money or received a large bonus, you might want to use it to pay off a chunk of your mortgage early or to increase the monthly payments you make. However, some lenders may not let you do this, or they may only let you increase the payments by a small amount.
If this is the case, you might want to remortgage to a more flexible deal, potentially for a smaller loan or with a better interest rate. But you’ll need to factor in any early repayment charges to see whether it’s worth it.
If your property’s value has gone up by a significant amount, your loan-to-value - the proportion of the property price that you borrow when you take out a mortgage - will have reduced.
If this is the case, you may have access to more competitive mortgage rates, which could mean it’s worth remortgaging. But again, you’ll need to factor in any early repayment charges to see whether it’s worth it.
The average loan-to-value consumers look for when remortgaging is 59%, according to MoneySuperMarket data from January 2016 – July 2018.
Many mortgages come with early repayment charges that you’ll have to pay if you get out of your deal early. This can work out to be very expensive and can outweigh any savings you’d make by switching.
If you haven’t got much of your mortgage to pay off, you might find that providers won’t be willing to lend to you.
A low credit rating means it’s harder in general to find a mortgage, especially one with a good interest rate. So if this applies to you, it’s worth looking at ways to improve your credit rating first, before considering remortgaging.
If your property’s value drops, your loan-to-value will increase. This means you’re unlikely to find a better rate if you want to remortgage, and it might even cause you to go into negative equity - where your outstanding debt is higher than the value of your property.
What kind of remortgage deal can you get?
A fixed rate mortgage is when the interest rate stays the same for a set amount of time. This can be a good option if you want peace of mind that your repayments will stay the same each month. Most fixed rate deals run for between two and five years, although some are longer.
Fixed rate mortgages are the most popular mortgage type for people looking to remortgage, according to MoneySuperMarket mortgage comparison quote searches from January 2016 – July 2018.
Tracker mortgages have variable rates that track the Bank of England base rate at a set percentage above or below it.
If the Bank of England’s base rate rises or falls, the interest you pay on your monthly mortgage repayments will do the same. This can be good when rates are falling, but you’ll need to be sure you could afford your repayments if rates went up.
Capped rate mortgage: a capped rate mortgage is a variable rate mortgage, but there is a limit to how high the rate can go. This can be useful if you want a variable rate mortgage, but also want to avoid unaffordable payments if the rate rises.
Discounted mortgage: a discounted mortgage is another type of variable rate mortgage which offers a discounted rate on the lender’s SVR for a certain period of time.
Offset mortgage: an offset mortgage helps to reduce the overall interest you pay by offsetting your savings against the outstanding balance of your mortgage. But this does mean you won’t be gaining any interest on your savings during the deal.
Arrangement fees: most mortgages have arrangement fees which can cost up to £2,000.
Legal fees: you might also have to pay for a solicitor to take care of any legal matters if you’re looking to remortgage with a different lender.
Admin fees: the lender might charge for the cost of setting up your remortgage.
Valuation: you’ll need to have your property valued so the lender can see if it’s worth the amount you’re remortgaging for.
If you disagree with the lender’s valuation of your property, you can challenge this if you think you can prove that your home might be worth more. This can include the sale price of properties in your local area, a costed list of any home improvements, or even by having it valued yourself – though this can be expensive, so you’ll need to be confident that your home is worth more than the lender’s valuation.
What makes you eligible for a mortgage?
Your eligibility for a mortgage will depend on your personal profile and credit rating, the value of your property, and the lender’s own criteria. Each lender will look at how much it believes you can afford before deciding how much to let you borrow.
The best way to find a good remortgage deal is by shopping around, so you can see the offers available from different providers. By comparing remortgage deals on MoneySuperMarket, you can sort through offers by the type of mortgage, as well as the initial monthly cost and interest rate, the overall cost - APRC representative - and whether you have to pay any fees.
You’ll need to enter how much you want to borrow and how long you want to be borrowing for, as well as the value of your property and whether you want to repay interest only or the capital – the value of the property - as well.
The comparison tool won’t take into account your financial situation or your credit history, so the interest rate deal you’re offered when you make an application to remortgage may be different to the quotes you see.