How a remortgage works?

 

For many who haven’t bought a property before or those who are still with their initial lender from when they bought their house will never have had to remortgage before, but a remortgage is something we will all go through multiple times in our home owning journey. The average mortgage term in the UK today is 33 years, with this in mind you may remortgage 6-10 times in your lifetime. 

 

 

Well, the simple answer is the mortgage you take out when you buy the property will typically be a fixed rate mortgage where you have a set interest rate for a set amount of time and therefore a fixed monthly repayment. At the end of that time frame, you would move onto the lenders standard variable rate which will likely be more expensive than the fixed rate you initially selected, if you failed to take any action with your mortgage at the end of this period. 

 

A remortgage essentially is the process of finding a new mortgage deal with a new lender to replace when your current deal when that one expires. 

 

 

If you stay with your current lender but on a new rate with them, this is called a product transfer also known as a rate switch. This is the process of finding a new rate on a like for like basis (meaning you keep your existing loan amount and remaining term the same) but finding a new rate with that lender in preparation for your current rate ending. 

 

Yes, by moving to a new lender you can completely alter the terms of your mortgage. This could be extending your term to reduce your mortgage payments, borrow more money for a range of reasons or shorten your term by increasing your payments. 

 

If you are tied into a mortgage deal with a lender on a fixed rate basis, you will likely have early repayment charges to consider. Lenders add in early repayment charges to mortgages to penalise borrowers for repaying their mortgage early. When looking at your remortgage options you must consider this and work around them, best advice is to check your current mortgage statement to see when your current deal ends and what the applicable charges will be. If you leave your lender before your current mortgage expires, even by 1 day you will be charged the fee outlined in your mortgage offer. By knowing the charge applicable and the date that charge no longer applies helps you to calculate when is the best time to start the remortgage process and when you want your new mortgage to complete. 

 

Once you have discovered when your deal ends, you can then plan when you will begin your search for a new mortgage. We advise that you begin this process within 6 months of your current deal ending the reason for this is any new mortgage offer from a new lender is valid for 6 months only. If you apply before 6 months, the new mortgage offer will expire before it is able to take effect. You could start it early by replacing your current mortgage early, but you would incur the early repayment charges on your current deal, which we want to avoid if we can. 

 

When moving from one lender to another during the remortgage process you will need to submit a new application to that lender just like you did when you initially bought the property. That new lender will carry out credit checks on you and verify your income by reviewing relevant documents and will then instruct a property valuation of their own to value the property on today’s value. 

 

The remortgage process also requires the input of a solicitor to amend the legal charge on your property and land registry. When you bought the property the lender that gave you the money in 1st place will hold a 1st charge on your property, which basically means if you sell the property the lender will get paid first, followed by yourself. Moving from that lender to a new one means that you need to change that legal charge to the new lender. This process is not as intense as when you initially bought the property, so much so that lenders offer this service as a free incentive as part of their mortgage products to choose that lender. 

 

Remortgaging can give you the opportunity to release equity to fund other needs such as pulling equity to fund home improvements such as an extension or new kitchen or bathroom. You can also pull-out money to invest into buy to let properties and consolidate unsecured debts such as credit card and loans. Often it can be more cost effective to add high interest debts such as credit cards to your mortgage. 

 

Should I remortgage or product transfer with my current lender? 

That is the question! Firstly, as an adviser we would check what your current lender can offer you as an existing customer. Some lenders offer preferential products for their current customers as an incentive to keep hold of them, and sticking with your current lender also means you do not need a valuation, solicitor or full application as you are not changing your terms, and you have the track record of maintaining your mortgage with that lender. 

 

We would then compare what your current lender can offer with what every other lender on the market can offer too to see if there is a cheaper and more suitable product out there with another lender. Depending on the difference we would calculate the work needed to move to another lender versus the benefit you would achieve for moving to another lender. 

 

It can sometimes be a minefield searching the market and comparing deals and getting the timing right, so we would always say… leave it to us! Let us scour the market for you, let us complete the paperwork, let us answer any questions and let us take care of you from start to finish.