A simple guide to remortgaging

Warning: your home may be repossessed if you do not keep up repayments on your mortgage.

Your mortgage could be costing you thousands of pounds over the course of your loan term. The mortgage market today is competitive, with plenty of lenders offering great deals to all types of borrowers. If you decide to remortgage you could end up with a cheaper deal which better suits your needs.

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What is remortgaging?

Remortgaging is the act of switching mortgages. This can be by moving your loan to a new lender, or just by changing the type of loan you have with your existing lender.

Usually, remortgaging is done to get a lower rate or a loan suitable for pursuits such as renovations.

More often it’s done by switching to a new lender that may offer an interest rate or features that better suit your situation.

7 reasons why you should consider remortgaging

As we mentioned above, remortgaging is usually done to reduce costs or to better suit your life.

In reality there are a range of reasons why you might want to say goodbye to your existing lender and look for a new one.

Let’s have a look at the various reasons below:

1. For a better interest rate

It’s always a good idea to approach your existing lender first to ask for a better interest rate. Make sure you do your research beforehand and show them the existing deals in the market and ask if they can match it. Staying with your existing lender could mean that you save on discharge or exit fees plus application fees of your new loan, not to mention the amount of paperwork you’ve saved.

2. To access and use equity

If you’ve built a significant amount of equity in your home you can remortgage to use this equity to purchase other properties or assets, such as funding a renovation for your home or purchasing a new car. One of the advantages to this is that you can purchase an item with the same interest rate as your home loan, rather than committing to an interest rate offered on a personal loan or credit card. However, one of the risks of accessing this equity is that it might take a bit longer to pay off your mortgage.

3. To gain access to new features

Again, it’s a great idea to approach your lender first if you want more features. Features like additional repayments, portability and offset accounts can help you save on interest repayments.

4. To pay less in fees

Fees should always feature in a mortgage comparison. Compare the application or establishment fees, ongoing fees, valuation fees, monthly or annual fees, and any other fees for using features such redraw facilities or 100% offset accounts. Just because a home loan has an annual fee or application fee it doesn’t mean it should be avoided. Take the time to look at it in depth and find out whether the fees are worth it for the benefits.

5. To get a loan that better suits your life

Different home loans suit different life stages, for example if you are preparing for retirement you may be more inclined to opt for a mortgage which gives you access to some of your equity.

6. To consolidate debts

You can use the money you would release from your home to pay off other debts. Mortgages usually have lower interest rates than personal loans and credit cards so if you find the right deal you could be saving yourself money. It is important to be aware that by your mortgage repayments might now be higher or run for a longer period so you could end up paying more in the long run.

7. To get better customer service

It is important to be happy with the reputation and service of your lender. If you are not happy with the customer service of your current lender you might want to think about swapping to a lender who offers more of a personal approach to customer service. You could save yourself a lot of hassle by having one person dedicated to your mortgage application and needs. The amount of support and guidance a lender is willing to offer generally reflects the standard of their customer service.

When does it not make sense to remortgage?

• If you have a fixed rate mortgage and are still within the fixed rate period then the exit costs may be so high that the cost of the fees could outweigh the benefits of remortgaging
• If you think you’ll probably sell your property in the near future and you won’t keep the mortgage long enough to make any decent savings.
• If you think you’ll probably sell your property in the near future and you won’t keep the mortgage long enough to make any decent savings.
• If your loan amount is small; in this case the savings you’ll get by remortgaging might not be worth the interest you’ll pay.
• If you’ve been with a lender for quite some time, enjoy the service you receive and have other products with them (you might be better off asking your lender for a discount)
• If you need to remortgage to a longer term. This could result in you paying more interest.

How much will it cost me to remortgage?

Whilst remortgaging has the potential to save you money, there are a number of fees involved that are worth considering before you begin the application process.

• Exit fees. This is an administration fee charged when you’ve paid off your mortgage in full. Whether its to remortgage with a different lender or because you can afford to pay off the mortgage. Learn more about exit fees.
• Arrangement fees. These fees cover the initial costs of setting up your mortgage. Generally speaking the fee will be higher if your mortgage has a lower interest rate.
• Valuation fees. Your new lender will want to have your property valued as it might have changed in value since you bought it. The amount you will pay depends on the value of your property but sometimes lenders offer valuations as free as part of the remortgage deal.
• Legal fees. You will need a lawyer to help you with the legal work involved in remortgaging, luckily it shouldn’t cost quite as much as it did when you first took out the mortgage as there is less legal work involved. These fees cover the cost of your lender’s solicitors.
• Early repayment charge (ERC). If you have a fixed rate mortgage you’ll typically be locked in for a number of years. You can get out of the deal and remortgage however you will have to pay a penalty. It is usually better to wait until the end of the mortgage period before remortgaging.

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