Over the course of a mortgage, many homeowners find themselves seeking to switch lenders or adjust terms through remortgaging as financial needs and market factors evolve. Remortgaging involves replacing your existing mortgage with a new one, while keeping the same property as collateral.
In this comprehensive guide, we’ll explain what remortgaging entails, outline the many reasons to consider remortgaging, detail the step-by-step process, and provide expert tips for securing the optimal new mortgage deal. Read on for a deep dive into how remortgaging works and how it may benefit UK homeowners.
Defining the Remortgage Process
At its simplest, a remortgage means changing your current mortgage to a new arrangement, typically with a different lender. Your present bank does not need to be notified in advance about plans to remortgage. The new lender will repay the outstanding principal to your old mortgage bank upon closing the new loan.
A remortgage effectively allows you to shop around for the most favorable loan terms, rates and products based on current market conditions rather than being locked in. It functions similarly to refinancing a mortgage in the United States. Remortgaging should not be confused with a second charge mortgage which leaves the original mortgage intact while adding a second loan using available equity.
Top Reasons Homeowners Choose to Remortgage
There are several common motivations that lead homeowners to pursue remortgaging:
- Finding a Lower Interest Rate – Lender competition means lower rate mortgages are regularly offered. Remortgaging allows locking in a lower rate with another bank, reducing monthly payment size.
- Moving from Variable to Fixed Rates – Reducing uncertainty by switching from a variable to fixed interest rate protects against potential future rate volatility.
- Accessing New Mortgage Products at End of Tie-In – Remortgaging opens the door to better products not available during temporary tie-in periods.
- Releasing Equity for Major Expenses – Additional capital can be drawn through remortgaging for home improvements, educational expenses, or debt consolidation.
- Penalty-Free Early Repayment of Existing Mortgage – Repaying your current mortgage early without penalties can significantly reduce total interest paid over the entire term.
- Consolidating Debts into a Single Lower Payment – Higher interest credit cards, loans, and other debts can be consolidated into a lower rate remortgage, reducing overall outflow.
- Aligning Payments to Current Financial Circumstances – Remortgaging can allow adjusting monthly payments to align with changes in income and expenses over time.
For many, remortgaging opens access to better rates, greater flexibility, and improved cashflow all while keeping beloved homes.
How the Remortgage Application Process Works
The administrative process of applying and qualifying for a remortgage closely mirrors that of applying for a new purchase mortgage:
- Research New Remortgage Products – Examine new mortgage offerings to identify improved rate, term and amount options based on current property valuations and equity.
- Verify Lender Criteria – Confirm qualification criteria like required credit scores, loan-to-value limits, and affordability assessments to ensure likelihood of approval before applying.
- Submit Full Application – Provide all personal, employment, income, asset, and liability details to the prospective new lender just as when applying for a first mortgage.
- Appoint Conveyancing Solicitor – Hire or appoint a conveyancer to handle the legal aspects of ownership transfer from old lender to new lender.
- Obtain a Formal Mortgage Offer – After underwriting, receive a formal offer indicating rate, fees, loan amount and terms for acceptance.
- Complete Lender Verification Steps – Supply any additional needed information to satisfy the new lender such as property appraisal, employment verification, or credit checks.
- Set Remortgage Completion Date – Establish a set date that repayment of old mortgage will occur and new mortgage will activate. This is orchestrated by the solicitor.
Streamlining this administrative process enables quickly securing improved mortgage terms.
The Many Benefits of Remortgaging Your Home
The primary benefits that remortgaging aims to provide mortgage holders include:
- Lower Interest Rates – The main incentive is finding a lower interest rate with a new lender, resulting in reduced monthly costs and long-term savings on total interest paid.
- Payment Stability with Fixed Rates – Locking into a competitive fixed rate period through remortgaging shelters the borrower against rate rises during that timeframe.
- Access to Equity – Remortgaging allows drawing extra capital from accrued property equity for major expenses like home renovations, educational costs, or other investments.
- Reduced Debt Costs – Consolidating high-interest credit card balances, personal loans or other debts under the lower singular interest rate of a remortgage saves substantially on total interest.
- Flexibility After Restrictive Periods – Remortgaging opens access to better products not available during teaser, fixed rate, or other temporarily restrictive deal periods.
- Early Repayment of Current Mortgage – Making penalty-free overpayments toward principal by remortgaging can shorten the total loan term resulting in less total interest costs.
For many homeowners, remortgaging provides financial flexibility and stability when life or market factors change.
Finding the Best Remortgage Deal
As when seeking any mortgage, dedicating time to secure the optimal remortgage product and lender for your circumstances is key to maximizing benefits:
- Compare Rates and Fees – Weigh interest rates against arrangement fees, early repayment charges, and total cost over deal term to identify remortgages with the lowest total outlay.
- Research Lenders – Look beyond prominent high street banks. Lesser known lenders often offer competitive remortgage-only and niche products worth comparing.
- Get Pre-Approval in Principle – Apply for pre-approval before fully committing to gauge viability. Pre-approvals allow rate locking while property valuations and legalities are completed.
- Consider Private Banks – Private banks catering to high net worth clients offer exclusive remortgage products with perks like lower lending thresholds and fee waivers.
- Consult a Mortgage Broker – Brokers have access to the entire market including private bank offerings allowing them to source the most tailored rate and product.
- Review Exit Penalties – Factor in any early repayment charges levied by your current lender when assessing the maths on whether remortgaging makes financial sense.
- Compare Fixed vs Variable – Weigh benefits of payment stability via competitive fixed rate remortgages against flexibility of discounted variable rate deals poised to become more affordable.
With an organized, informed process, you can uncover your optimal remortgage opportunity when the time comes.
Is Remortgaging Right For Your Financial Needs?
While remortgaging offers many benefits, it must align with your overall financial and lifestyle objectives. You should consider remortgaging if:
- You can realize measurable monthly savings through lower interest rates after fees.
- You need to release equity from the property for major expenses.
- You will benefit from the stability of fixed rate payments through an upcoming period of uncertainty.
- You have temporary borrower status changes like improved credit or income.
- You value increased flexibility after being locked into a restrictive mortgage deal period.
However, remortgaging may not be advantageous if:
- You have significant early repayment charges due on your present mortgage.
- You are currently locked into a fixed rate mortgage with favorable interest rates.
- You plan on moving house in the near future negating benefits.
- Your financial profile has worsened making securing a cost-effective remortgage difficult.
Consulting an experienced mortgage broker or advisor can help assess if remortgaging aligns with your overall financial goals and timely needs given your specific circumstances. Their assistance ensures you remortgage strategically and productively.
In summary, remortgaging offers the opportunity to secure a more optimal mortgage solution as your needs and the market evolves over time. While not right for everyone, for many UK homeowners remortgaging can provide greater affordability, flexibility and access to equity when done strategically.