How Does Remortgaging Work?

In this guide, we will explore what a remortgage is, what the benefits of re-mortgaging can be, as well as delving into the remortgage process.

This post may be of interest to those new homeowners who are wondering what options may be available when their initial fixed term mortgage terms end or those longer standing mortgage holders who have not remortgaged before.

What does Remortgaging mean?

The term remortgaging means to switch from a current mortgage to a new lender, switching rate with the same lender is usually referred to as a product switch.

The purpose of a remortgage can include; switching to a new product, a new interest rate, altering the mortgage term or changing the loan value.

However often the common goal of remortgaging, irrelevant to other objectives, is usually to obtain the most competitive interest rate available on the market for the type of mortgage product.

Commonly, the process of switching takes place on or slightly after the current mortgage term ends, however sometimes mortgage holders choose to switch mortgage products during the current mortgage terms, even paying a penalty to do so for the right new deal.

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What is the Process of Remortgaging?

The process of remortgaging often depends on the objectives of the product switch, for example between staying with the current lender or transferring to a new lender, as follows:

Staying with the current lender

Remaining with the same mortgage lender is often the more-straight forward option, saving on paperwork and additional legal fees as the current lender is already familiar with the mortgage holders and property.

The process of switching rates with the same lender typically involves a conversation regarding finding out what mortgage products are available and their associated rates of interest.

Once the product selection has been confirmed, the mortgage will switch over without the requirements of any extra affordability or criteria checks.

By staying with the same lender, the process is typically very quick as no third parties are involved to undertake extra checks.

Although staying with the same lender is the easier option, it may not be the most competitive option and therefore it is recommended that the whole of the market is reviewed, in order to compare all options.

In addition, this option does not always require a property valuation to be undertaken, which although could save the mortgage applicant the costs of this service, any increases in the property value will not be factored into the remortgage application and therefore any improvement to the loan to value ratio may not be felt.

Transferring to a new lender

Switching mortgage lenders will require a new mortgage application to be submitted which will include all of the usual steps such as:

Completing the application process.
Gathering documentation.
Meeting the lender’s eligibility criteria.
Affordability checks.
Sufficient property valuation.

In addition, the requirement to nominate a legal team in order to undertake the necessary paperwork will also be required, which also adds to the costs in comparison to staying with the current lender although many lenders offer this for free.

It is recommended that the process of remortgage is commenced around 4 months before the end of the current mortgage term to provide sufficient time to research the market and the variety of products available, as well as allowing time for the arrangements to be made and to appoint third parties if required.

Why should I Remortgage?

The main benefit of remortgaging is to obtain a more favourable deal for the mortgage holder. This could be to achieve an objective such as:

To increase the loan value – The mortgage holder may be seeking to increase the loan value by withdrawing equity from the property for a range of purposes such as home improvements or settling other debts.

To change to a different mortgage product – The mortgage holder may have a requirement to switch between a fixed rate repayment mortgage and an interest-only mortgage, where the monthly repayments consist of interest elements only, leaving the capital to be repaid at the end of the term.

To secure the interest rate for a set period of time – This is one of the most common reasons to remortgage, especially during times of lower interest rates as a switch can save the mortgage holder money.

To opt for a more flexible deal – Should the mortgage holder wish to move in the short term, or wish to overpay their mortgage, they may be seeking a mortgage with more flexible terms.

What should be Considered Before Remortgaging?

Mortgage holders should consider their wider personal finances before making a new mortgage application as they would need to pass affordability checks.

Should their circumstances have changed since their original mortgage was taken out, it is highly recommended that mortgage advice is sought before making any next steps.

Is it Worth Remortgaging?

Every personal circumstance would need to be analysed in order to answer this question, and therefore there is not a black or white answer.

The mortgage holder (often with the assistance of their advisor) would need to calculate the benefits offered by the new deal in comparison with the current mortgage terms.

Usually, at the end of a fixed-term mortgage deal, the mortgage would automatically transfer over to the lender’s standard variable rate product, which, depending on the interest rates at the time, can prove to be very costly.

In addition to the cost benefits of the new mortgage terms themselves, the expense of the other fees that come with remortgaging would need to be taken into consideration when calculating the overall costs during the decision-making process of whether or not to remortgage.

The other fees applicable to a re-mortgage may include; property valuation fees, arrangement fees and solicitor fees although many lenders offer a free valuation and solicitor fees on a remortgage application.