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How to Remortgage Your House (The Right Way)
Whether you're looking for a better mortgage rate or want to release equity from your home, we explain everything you need to know about remortgaging your house.
And to speak to an adviser at any point about your situation, please get in touch.
What is a Remortgage?
A remortgage, as the name suggests, is mortgaging again. It refers to the process of replacing your current mortgage with a new one. It is a form of refinancing, a technique often used in both personal and business finance to take advantage of changing market and economic conditions.
With a remortgage, you make a new application for a mortgage, often with a different lender to your current mortgage, using the funds from the new mortgage to pay off the old one and replace it entirely.
If you stay with your current lender but select a different mortgage product with them, this is sometimes called a product transfer. It works identically to a mortgage though some fees may be smaller as you are remaining with your original provider.
Why Remortgage Your House?
There are multiple reasons to remortgage. Here are 7:
Coming to the end of a fixed term
When you first get your mortgage, it is often a fixed term mortgage where the interest rate is set for a number of years. When that fixed term comes to an end, your mortgage will automatically move to the lenders variable base rate (VBR).
This rate is unlikely to be the most beneficial for you and it is generally a good idea to switch to a better deal through remortgaging as quickly as possible. This might be to a new fixed rate for more years of security, or it may be to a more flexible variable rate mortgage such as a tracker mortgage.
Related: Should I Get a Fixed or Tracker Mortgage?
To obtain a better deal
Interest rates are constantly in flux. If you took out your mortgage during a time of high interest rates and the economy has improved since, then current interest rates could be significantly better than the ones you are paying.
Remortgaging to take advantage and switch to a better deal, either fixed or variable, can save hundreds, or even thousands of pounds a year.
Better deals may also be available because your property has increased in value. When this happens, your existing rate that was determined by the LTV of your mortgage at the time of purchase, can be improved through a remortgage.
To reduce your monthly payments
It may be that you are struggling with the weight of your current mortgage and remortgaging could help reduce your monthly payments to a more manageable level, either by increasing your mortgage term or simply by taking advantage of improved interest rates and deals available.
Your personal circumstances have changed
Mortgages are long-term debt obligations and most people experience a change during their lifetime, whether a change in relationship status, a move to a different job, or anything else.
When these large life changes occur, re-evaluating your mortgage and looking to see how it can be improved can help considerably; whether your financial situation has worsened or improved.
You wish to release some equity by borrowing more money
A common reason to remortgage is to free up some of the equity in the house to use the money for other reasons.
This may be because you are looking to make renovations or add an extension to the house, or it could be for another significant purchase. A remortgage can provide that extra capital, making the most of the money you have already invested in your home.
You are looking to rent out your property (or vice versa)
If you are wanting to become a landlord and rent out your existing home, then you will need to change your mortgage from a owner-occupier residential mortgage to a buy-to-let mortgage.
There are multiple ways to do this; through a let-to-buy mortgage, or simply directly remortgaging as a buy-to-let. Remortgages give you the power to reassess your plans for your property.
The same applies in reverse - if you have been letting out your property and now wish to live in it, you can use a remortgage to change your previous buy-to-let mortgage to the appropriate residential mortgage.
You need to consolidate debt
If you have significant debt outside the mortgage, all at higher interest rates than a mortgage would present, then it can be sensible to leverage the equity in your property to consolidate all that debt into one - the remortgage.
This allows you to pair down your debt burden and take advantage of the preferential rates that a mortgage offers.
Important Considerations When Remortgaging Your House
Even though you have the backing of your property and the equity you have built up in it, remortgaging isn’t always a clear cut deal.
It is essential that you consider the ins and outs of the remortgaging process and how lenders evaluate your application:
Your credit score
When you first obtained your mortgage, your credit score was put under scrutiny. It is likely that you spent some time (probably months) taking care to get your credit score in a good position before making the mortgage application.
The same is true when you are considering a remortgage.
It is essential that you have a thorough understanding of your credit rating and that it is as high as possible. If it has dropped since your first successful mortgage application, then consider working on it to build it back up before looking for a remortgage.
Your income to debt ratio
Like your credit score, your income-debt ratio and affordability tests would have been a key part of your initial mortgage application; and like your credit score, they are as important when looking for a remortgage.
Take control of your spending just as you did when first looking to buy your home and bring your debt obligations down.
The national economy
Times change and the countrywide economy today is unlikely to be as it was when you first got a mortgage, and no amount of hoping otherwise will fix it.
It may be that the economy is in a better position and mortgage rates are lower, but this is by no means a guarantee. It is important that you research the mortgage marketplace and speak to advisors to time any remortgage application to make the most of the shifting tides of the economy.
Your property value
We all hope that our homes rise in value, but that’s not always the case, especially if you have been lax in its maintenance. Your new mortgage lender will take out a thorough evaluation of your property value when considering a remortgage, so do what you can to fix any minor issues that may knock this down.
Loan-to-value
In most instances, it is likely that a remortgage is in your favour. You have paid off a chunk of your mortgage and if the property has risen in value (or even remained the same) then the loan-to-value of your remortgage is likely to be lower than it was the first time around.
Loan-to-value is a major component in obtaining a good mortgage rate, so take this into account when thinking about your remortgage deals.
If your reason for remortgaging is to get some equity released from the property, then get advice regarding the maximum level of LTV you can expect so that you can work our your figures accordingly.
Fees
There are a range of costs that may come with remortgaging your home, including early repayment charges (ERC), and arrangement fees for the new mortgage. Fees are looked at later in this guide in more detail.
When Not to Remortgage
There are some situations where a remortgage application won’t be successful - however, our expert team at Clifton Private Finance have the specialist skills to help you maximise your opportunity.
If any of the following applies to you, speak to us early in your remortgaging process to make sure you can get on the right path sooner rather than later.
Bad credit
A period of poor credit can put the brakes on any loan application, including remortgages. We can help you by looking to products from specialist lenders who deal with bad credit mortgages as well as providing advice and other financial options that will help you rebuild your credit rating.
Insufficient income
Even if your income hasn’t changed since your first mortgage, inflation will have done, and this can mean that what was good enough a few years previously no longer meets lenders criteria.
By working on your debt ratio and affordability, perhaps by looking at refinancing in other areas, our specialists can put you in a stronger position.
Greater debt obligations
Even if you are handling your debt, if it has increased since your first mortgage then you will be assessed somewhat differently. Speak to our advisors to see how you can improve your monthly debt burden.
Relationship changes
If you took out a joint mortgage initially and are now looking for a solo mortgage, you will need to show a greater level of income; similarly, if your previous mortgage was in your name alone and you are now looking for a joint mortgage, the evaluation process will be different.
Our team will help you predict the impact a second applicant (or lack thereof) will make to your remortgage chances.
Drop in property value
If your property has lost value, then a remortgage may be difficult. In some cases, it may seem impossible; especially if you have unfortunately ended in a position of negative equity. However, it is always worth discussing your circumstances with our experts to see how they can help.
Property needs maintenance
If your home has suffered and needs maintenance you can find yourself in a loop, where you need the money released by the remortgage to undertake the work, but you can’t get the remortgage because the work needs doing. In these situations, other financial options such as bridging loans can help. Speak to our team to find out more about breaking these difficult cycles.
Second charge mortgages
A second charge mortgage (subordinate debt) is a secondary loan that is secured against your property as collateral. If you have a second charge mortgage, it may affect your ability to obtain a remortgage.
In these cases, it is typically advantageous to look to a consolidation remortgage that replaces both your existing first charge mortgage and the second charge debt at once, especially as the mortgage rate on the remortgage is likely to be an improvement than any existing second charge rate.
Speak to our specialists to discuss consolidating your homeowner debts in this way.
Your retirement
If you have become older and are of retirement age or close to it, then a standard remortgage may be out of reach.
These include retirement interest-only mortgages (RIOs), lifetime mortgages, and home owner lines of credit (HELOCs). Ask to speak to a specialist equity release advisor to learn more about retirement age mortgages.
The Process of Remortgaging Your House
Getting a remortgage can take a few months, and is a major financial commitment and change. It is important that you give it the respect needed to get the best deal.
Working with a specialist advisor, like our team at Clifton Private Finance, will give you the best opportunity to get a worthwhile deal on your remortgage.
Contact us at any point in the process to get valuable expert advice.
Step One - Evaluating the Viability
The first part of any remortgaging process is to properly examine the viability of a remortgage and see if it is right for your finances. Consider the following:
- Your current mortgage interest rate
- The time remaining on any fixed or discounted term
- The listed mortgage rates in the current market
- Any fees or penalties you may have to pay to your current lender for leaving the mortgage at this time
- Your expected property value
- Your status as a borrower (credit rating, income, debts)
Step Two - Defining Your Goals
Why do you want a remortgage? Are you looking to simply improve your mortgage rate, do you want to take out equity as capital, or is your fixed rate coming to an end and you simply don’t want to be put on the lender's variable base rate?
Understanding what you want from a remortgage is a key step to getting the best out of the deal.
Step Three - A Valuation
A remortgage is worthless without a valuation, and one of the first questions our advisors and any mortgage lender will ask is whether you know the current market value of your property. You may want to get a free valuation from a lender, ask an estate agent for their valuation, or pay for an independent valuation if that suits you better.
Remember - you are not looking to sell your property, so trying to cover over or ignore problems has little advantage to you (the lender will discover them). Be open and honest when obtaining your valuation.
Step Four - Speak to Clifton Private Finance
Discussing your options at this point with your mortgage advisor is the best next step. We can help you evaluate the marketplace and find the deals that are most suitable for you.
At this stage, you will have a good indication of your remortgage viability and be ready to move forward.
Step Five - Remortgage Application
Similar to your initial mortgage application, you now make a remortgage application. We are here to support you throughout the process.
Step Six - Legal Process
Unlike a first mortgage, you are not buying a house, so there are fewer legal steps than in that situation, however a remortgage is still a legal contract and you will need a conveyancer to undertake the process.
And that’s it! Congratulations on your new, improved, remortgage deal!
The Costs of a Remortgage
Obtaining a remortgage is not without its costs - and these should be fully accounted for before going forward. These may include:
- Early repayment charges (ERCs) - Early repayment charges are the way your current mortgage provider protects themselves from you jumping ship and they are especially firm during fixed rate terms. It is essential that you check the ERCs in your mortgage terms and conditions as they could be costly enough to put you off the whole deal.
Often, it is worth waiting until the end of your fixed rate until remortgaging purely due to the cost of ERCs, but a proper calculation of the improved remortgage rate against the fees will show this. ERCs are typically calculated as a percentage of the outstanding balance, with different rates depending on the time left on any fixed term. You should also properly consider any new ERCs of the remortgage deal you are about to undertake. - Exit Fees - An exit fee is a far smaller fee that occurs when you leave one mortgage provider for another. It’s simply an administrative fee for closing your mortgage account and transferring the legal paperwork and is typically between £50 and £300.
- Arrangement Fee - This fee is charged by the new mortgage provider (the remortgage provider) and is similar to the arrangement fee you would have paid on your first mortgage.
- Valuation Fees - A valuation fee may be charged by the lender for undertaking the property valuation, though many lenders offer free valuations.
- Legal Fees - You will need to use a conveyancer to finalise the deal, however, some providers offer to undertake the legal work at no additional cost.
Remortgaging with Clifton Private Finance
At Clifton Private Finance we specialise in mortgages of all types, including remortgage deals. Our team of experts spend all day, every day, working in the UK mortgage landscape to build relationships with lenders and discover the best deals, and then we bring that expertise to you.
Whether you are looking to remortgage because your fixed rate is soon to end, you want to release some equity in your home, or you’re looking to lower your monthly repayments, we can help. Contact Clifton Private Finance today.
