Remortgage

What is a remortgage?

A remortgage involves replacing your current mortgage with a new one, often with a different lender. Selecting a new deal with the same lender is known as a product transfer or rate switch.

Why should I remortgage?

There are numerous reasons why you might want to remortgage, including:

• Getting a new interest rate – better rates might be available, especially if your loan-to-value has decreased. Even if you are coming off a very low rate, reviewing your options could reveal better deals than settling for your lender’s follow-on rate.
• Making changes to your mortgage – for example, you might want to reduce the overall term.
• Releasing equity – if you have sufficient equity in your home and can meet the affordability requirements, you could borrow more to gain access to a lump sum of cash. This can be used, for example, to pay for home improvements, to buy out an ex, or provide a deposit for a rental property purchase.
• Debt consolidation – some homeowners use a remortgage to consolidate high-interest debts, such as credit card debt, into a lower-interest mortgage loan. This can make it easier to manage. Think carefully before securing debts against your home.

How does remortgaging work?

A remortgage involves submitting a full mortgage application to a new lender. It’s therefore vitally important that you research lender criteria, and do affordability checks, before applying. This will increase your chances of success.

You will have to provide documentation such as bank statements and income proof. The lender will conduct credit and affordability checks, and will do a basic valuation of the property.

How much equity do I need in my property?

It varies from lender to lender, and depends on what you want to do. For example, you may need more equity if you are consolidating debt compared to if you just want a new like-for-like deal. 

As a general guide, most lenders need at least 10% equity to consider a remortgage. If you have less than this, a rate switch with your current lender might be a better option.

You won’t be able to remortgage if you are in negative equity. That’s when you owe your current lender more than the house is worth. 

What costs are involved with remortgaging?

Some remortgage deals come with very low, or even no, up-front fees. If your options are more limited, for example due to bad credit, your lender may have more fees than a high street bank. 

As mentioned above, the lender will do a basic valuation of your property. Products may be available that include a free valuation if you don’t want to pay for this.

Likewise, some deals come with free standard legal fees, too. In these instances the lender chooses the firm of solicitors that will act for them and for you. The alternative is selecting a deal that means you have to pay for the legal work yourself. This can give you more flexibility because you can then choose a suitable firm. You might get a small amount of cashback from the lender in lieu of free standard legal fees.

You need a solicitor because they handle the transfer from one bank to another, not just in terms of funds but also at Land Registry.

There may be associated costs such as application fees, exit fees, and early repayment charges. It’s essential to carefully consider the costs and benefits of remortgaging and to compare offers from different lenders to make an informed decision based on your financial goals and circumstances.