What is a remortgage and how does it work? 

Every little thing you want to know in case your mortgage is coming to an finish

When you might have a mortgage, it’s normally fastened for a sure time frame – normally two or 5 years however some offers will be so long as 10 years or extra.

And when that time period involves an finish, until you’re planning on repaying your total mortgage, you’ll have to remortgage. It will stop you being rolled over onto your lender’s Commonplace Variable Price (SVR), which is usually way more costly.

However what precisely is a remortgage and the way do you do it? 

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What’s a remortgage? 

In a nutshell, a remortgage is the place you turn your current mortgage to a brand new deal – both along with your present lender or a brand new one. 

If we’re being technical, should you keep along with your current lender and swap to a brand new charge, it’s referred to as a ‘product switch’ whereas a full remortgage is while you transfer to a completely new lender and apply for a brand new deal.

Should you go for a brand new lender, they’ll repay the present mortgage and the excellent debt will likely be transferred to them as a part of a brand new mortgage settlement, probably with a distinct rate of interest and phrases. 

And as a part of the remortgaging course of, your present lender’s authorized cost in your property (the place you agree to offer the lender rights over your property so it might probably get well its cash should you default) is eliminated, and your new lender registers their very own cost as safety for the mortgage.

You’ll then make your month-to-month funds to whoever you’ve taken out this new deal.

Why ought to I remortgage?

There are a number of the explanation why individuals remortgage:

• To safe a greater rate of interest than their present deal
• To keep away from being mechanically moved over onto the lender’s Commonplace Variable Price (SVR)
• To extend borrowing — for instance, to fund dwelling enhancements
• To replicate a change in circumstances, akin to including or eradicating somebody from the mortgage

Attempt our mortgage calculator

Our mortgage calculator helps simplify issues by providing you with an concept of how a lot you would borrow and your probably month-to-month repayments.

The place do I begin?

Remortgaging will be  a lot simpler than getting a primary mortgage. It’s more likely to be faster with much less paperwork particularly should you’re sticking along with your present lender, as they’ll have all of your monetary data and particulars of the property already.

Earlier than your present deal runs out, your lender will write to you to let you realize it’s coming to an finish. Should you don’t remortgage earlier than it does, you’ll mechanically be put onto the lender’s SVR, which as I mentioned above, is normally way more costly.

Your lender would possibly embody your closing steadiness or you possibly can request this so you understand how a lot is left in your mortgage. You’ll want this to your new deal because it’ll inform you how a lot you want to borrow while you remortgage. 

Whereas staying along with your present lender could appear the best possibility, this might see you lacking out on higher offers elsewhere. There are millions of mortgage offers available on the market. 

Should you’re undecided the place to start out, you would contemplate talking to a mortgage dealer that will help you discover the fitting deal to your circumstances.  

Some brokers cost you a payment to do the work however we’ve partnered with Tembo, to offer you entry to their award-winning service together with your very personal mortgage advisor and it received’t price you a penny!

Alternatively you’ll find your personal choices. An excellent place to start out is by checking our remortgage best buy tables, to offer you a way of what offers are on the market, and we’ve additionally bought a nifty remortgage calculator that exhibits you what you would afford to borrow.

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Remortgaging choices

In the identical manner as you probably did while you mortgaged for the primary time, you’ll want to think about what sort of deal fits your wants. For instance, whether or not an interest-only or compensation, fastened or variable charge is greatest for you, and what’s the fitting size of time period for you. 

We’ve defined the different types of mortgage right here and should you’re undecided, you possibly can all the time converse to your dealer who might help you decide.

It’s additionally price seeking to see in case your ‘loan-to-value’, or LTV has improved. This represents how a lot you want to borrow in opposition to the worth of the property. Because you’ve been including to your preliminary deposit with month-to-month funds (until you’re on an curiosity solely mortgage) and paying down your mortgage, your LTV may have dropped and it might imply you might have entry to higher offers. We’ve defined right here how loan-to-value works.

Do I would like a solicitor?

Should you’re remortgaging with a brand new lender, you’ll normally have to instruct a solicitor or conveyancer to deal with the authorized aspect. 

Although the authorized work is much more straight-forward than while you get an preliminary mortgage, it’ll embody drawing up the brand new mortgage settlement, finishing up checks on behalf of the brand new lender, confirming your identification, and ensuring the brand new mortgage is registered in opposition to your new property on the Land Registry at completion.

Should you’re remortgaging along with your present supplier, you don’t normally want a solicitor. It is because product transfers sometimes don’t contain any authorized work.

In some circumstances, you would possibly be capable of get the authorized half without cost as a part of your remortgage package deal – some lenders might supply this perk for extra easy circumstances. Nevertheless, you’ll have to examine how the free authorized service impacts the rate of interest on supply, because it might not be the perfect deal total. 

It’s a good suggestion to additionally examine all remortgage packages, together with these with out free authorized assist. Chances are you’ll discover some lenders, with higher charges, supply different perks, like cashback, which could possibly be used to assist cowl authorized prices with an unbiased solicitor as a substitute of the lender’s one. 

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What occurs subsequent?

No matter whether or not you employ a mortgage dealer or apply for a remortgage immediately with the lender, you’ll want to point out them proof of your monetary scenario to allow them to examine you’re who you say you’re and that you would be able to afford the repayments.

This might embody: three months’ of financial institution statements or payslips, utility payments, bank card statements and proof of deal with normally overlaying the previous three years.

Again within the day, you’d normally have to ship within the paper paperwork for verification. However now you could possibly submit the paperwork digitally to be checked.

In case your software is accepted, you’ll then be issued with a Mortgage in Principal (MIP). This tells you the way a lot the financial institution is keen to lend you, and a valuation will likely be organized, so the lender will be assured the property is price what’s said. 

The lender’s underwriting group will assessment each your paperwork and the valuation report back to make a last choice on whether or not to grant you the mortgage.

If all goes to plan, you’ll then get your official mortgage supply, which usually lasts for six months. Nevertheless, bear in mind that this doesn’t essentially lock within the rate of interest till the brand new mortgage begins.

Your solicitor will then do some last checks on the authorized stuff. They’ll additionally request the redemption assertion out of your present lender (which can state how a lot you owe), verify the account is closing, ask for the cash from the brand new lender to repay your current mortgage and can register your new mortgage particulars on the Land Registry.

How a lot does it price to remortgage?

In addition to solicitor charges, there are fairly a number of prices that apply while you remortgage.

First there are the charges to finish your present mortgage, which can embody:

• Early Compensation Cost: should you finish your fastened mortgage early to get a brand new deal, you’ll normally should pay an Early Repayment Charge (EPC) that’s sometimes between 1% and 5% of the excellent steadiness of the mortgage – which could possibly be hundreds of kilos. Nevertheless, you’ll not should pay this in case your new mortgage begins simply after the present deal finishes
• Deeds launch payment: also called an admin payment, that is paid to your present supplier to allow them to ship your property’s title deeds to your solicitor. Typically it’s paid while you first take out the mortgage, however it’s normally between £50 and £300. However some lenders received’t cost this in any respect.

After which there are the costs to your new mortgage akin to:

• Association payment: that is charged by the lender for establishing your mortgage. It may also be known as a product payment and it normally begins at round £1,000 or it could possibly be a proportion of the entire quantity borrowed. You’ll be able to usually select to pay this payment upfront or add it to your mortgage – the most suitable choice for you’ll rely in your circumstances. 
• Reserving payment: some lenders additionally cost a reserving payment to lock in considered one of their prime offers. It’s not significantly frequent, particularly with remortgaging, however should you do come throughout it, it’s normally between £100 and £300.
• Valuation payment: should you’re remortgaging with a brand new supplier, they should know the property’s worth they usually would possibly cost you for a surveyor to evaluate your property. This might price between £250 and £500, though in some circumstances it may be as a lot as £1,500. Nevertheless, in loads of circumstances you’ll discover the valuation payment is definitely coated by the financial institution or constructing society you’re remortgaging with.
• Solicitor charges: these are normally round £300 or £350 however the brand new lender usually covers the associated fee. If not, you’ll have to pay this upfront.
• Mortgage dealer charges: should you’ve used a dealer who prices a payment it’s normally between £300 and £600 or it could possibly be 1% of the mortgage quantity. Nevertheless, you possibly can simply discover a free dealer together with the multi-award profitable Tembo, should you apply through Be Intelligent With Your Money.

As well as, you’ll even be paying your new mortgage charge. You will discover out how a lot you’ll be paying every month utilizing our affordability calculator. 

Should you use a dealer, they might consider these prices when recommending a product. For instance, they might present you the way a lot the association payment impacts the price of the mortgage over the time period and whether or not a take care of a barely larger rate of interest with free authorized assist is a less expensive possibility total.

How lengthy does it take to remortgage?

Often between 4 to eight weeks. I’d permit for 3 to 4 weeks to get a mortgage agreed by a lender though it could possibly be faster. Then it could possibly be round 4 to 6 weeks for the authorized work to be carried out.

When ought to I remortgage?

Your greatest wager is to start out offers six months earlier than your present fastened charge mortgage deal ends. That is to offer your self sufficient time to kind out a brand new deal and keep away from that dreaded SVR. Most banks and constructing societies may even allow you to safe a brand new deal three to 6 months earlier than you really need it. 

If charges fall within the meantime, you don’t have to go forward with it and also you’ve nonetheless bought time to use for a brand new deal. Nevertheless, examine the small print to search out out if you want to pay the charges upfront as you won’t get them refunded should you don’t undergo with it. 

Will remortgaging influence my credit score rating?

It may do – but when it does it’ll be minimal.

Should you’re remortgaging with a brand new lender then you definately’re principally making use of for a brand new mortgage so might want to move the lender’s credit score and affordability checks. This normally features a onerous credit score examine – an in depth have a look at your credit score rating which will likely be recorded in your credit score report  – which can briefly decrease your credit score rating barely. Normally a mushy credit score examine which doesn’t influence your rating is carried out earlier than a tough credit score examine is accomplished by a lender.

Should you’re remortgaging along with your present lender and the quantity you’re borrowing is staying the identical, likelihood is they’ll forgo a credit score examine as they’d have carried out one the primary time spherical and should you’ve saved up along with your repayments, there’s no have to do one other one.

What if I need to borrow more cash?

You could possibly remortgage and borrow extra funds – loads of individuals do that after they want further money, say for dwelling renovations. You are able to do this along with your present lender and while you swap to a brand new one.

You’ll want a great credit score historical past and might want to issue within the larger repayments that comes with a much bigger mortgage. Borrowing extra may even enhance your LTV which implies it’s possible you’ll not qualify for a few of the extra aggressive offers.

Taking out a much bigger mortgage may not be the most cost effective option to entry funds and because the mortgage time period is normally longer than a typical mortgage, you would find yourself paying extra curiosity within the long-run.

Do I remortgage if I’m transferring or shopping for a brand new dwelling?

Should you’ve bought a set mortgage and are promoting your property to purchase a brand new one, you might have two important choices. 

You possibly can ‘port’ your mortgage – in case your lender permits it. This implies you’ll switch your current mortgage to the brand new property. Nevertheless, you continue to have to reapply to port your mortgage and you would be turned down should you don’t qualify. Plus, not each mortgage lender permits debtors to port their mortgage deal, so it’s price checking if that is potential along with your present supplier.

If you want to borrow extra, since you’re shopping for a dearer dwelling, your lender won’t allow you to or will solely permit it should you take out the extra borrowing on the merchandise accessible on the time. 

So successfully you’ll find yourself with two accounts on one mortgage, normally with totally different charges.  If each are fastened offers they might finish at totally different occasions which must be thought of for while you would possibly remortgage sooner or later.

Alternatively you would take out a complete new mortgage, however bear in mind the charges of redeeming the mortgage early – it may find yourself very costly. 

Is remortgaging a good suggestion?

Sure, positively, in case your present mortgage deal is coming to an finish and also you don’t need to pay extra on the lender’s SVR. Simply bear in mind, there are a selection of various charges to pay.