Guide to remortgaging
Want to save thousands on mortgage repayments? Planning to renovate or extend? Has your fixed rate mortgage just changed over onto the standard rate, and you want to re-fix the repayments? Has your income gone up or down, leaving you keen to re-pay more or less a month? There are many reasons for remortgaging. Are you looking into how to remortgage a house? Read on to find out everything you need to know about what remortgaging involves, how remortgaging works, and the benefits of remortgaging. At the end we’ll answer some of the most commonly asked questions about remortgaging. Let’s go.
What is Remortgaging?
Remortgaging means you cancel your existing mortgage and take out a new loan. You simply pay off an existing mortgage with a new one, either switching to another product from your existing lender or moving to a different lender. It’s different from borrowing more money via your current lender.
A remortgage can involve switching from your current mortgage to another product. It doesn’t mean moving house, it just means replacing the current financial agreement on your property with another.
Remortgaging also means changing your mortgage deal, either for the same loan amount or a bigger loan, where you release more money from the equity you’ve built up as property prices increase. You might want to fund home improvements, renovations or extensions, for example.
In most cases, people either remortgage to get a better interest rate, with lower repayments, or to unlock extra money. There’s another way to raise funds on your property for other purposes, called a capital raising mortgage. You can use the money for anything you like, it’s simply a way to realise the value locked up in your home.
How Remortgaging Works
So what’s the process you’ll follow when remortgaging?
First, you’ll want to carry out in-depth research into the mortgage deals available, from your current lender and others out there in the market. You should be able to get to grips with your existing lender’s products relatively easily and quickly, either online or with a phone call, but as for the market as a whole, it’s wise to find a good financial advisor with access to products from a wide range of lenders.
Next, figure out exactly what it’ll cost you to switch mortgages. These will probably include the booking or completion fees your new lender charges you. If you’re staying with your current lender you might be able to negotiate a no-fee switch. Even though you’re not selling up or moving, there are conveyancing costs to account for.
You’ll be looking at property valuation costs because the lender, current or new, will only lend once they understand the value of the property they’re lending against. And your existing lender might charge you for early repayment, or ask you to pay exit fees. There will be legal fees to pay, and the new lender might charge an arrangement fee.
Once you know all this, you’re in a good position to get a ‘decision in principle’, also called an agreement in principle, from the lender. You can be fairly sure you’ll be given the go-ahead, and if you’re happy with the deal you can go ahead and apply for the remortgage. Take care to review the mortgage offer in detail before accepting it.
There’s a string of legal requirements to go through as you proceed through the remortgage conveyancing process, although some lenders will give you free legal support when you’re remortgaging with them. You’ll still pay legal fees if the remortgage means a simple change, for example taking someone’s name off the mortgage.
When does a remortgage complete? Completion takes place once the old mortgage is repaid and the new one starts.
Benefits of Remortgaging
What are the most important benefits of remortgaging? For a start it’s a reliable way to reduce your monthly repayments. When interest rates go up, so do mortgages, and a new mortgage might be the easiest way to get your payments back down to something affordable. It depends how much it’ll cost you, in total, to get the job done. The same goes when introductory mortgage deals are over, leaving you facing higher rates.
Remortgages are also a great way to free up capital that’s otherwise stuck in your home as equity, nice in principle but not much use when you need more money right now. A better mortgage deal can send your repayments down leaving you more to spend. You can even use the money for other projects, maybe property development or home improvement to add more value to the place.
Maybe you want to adapt your borrowing to suit life’s everyday financial changes. If you’ve had a pay rise or a new better-paid job, you might want to pay off more every month to clear the loan faster. If you’ve taken a pay drop the opposite applies – you’ll want to reduce your outgoings.
Plenty of people remortgage to reduce the LTV of their mortgage, the loan-to-value ratio. The loan-to-value is the ratio of the mortgage loan to the property’s value. The more it’s worth compared to your mortgage, the higher your home’s LTV. If you’ve borrowed £150,000 and the house is now worth £250,000, you’re in a good position. It can even influence mortgage interest rates. If the property value increases, LTV decreases – which means you might benefit from a better mortgage deal through remortgaging. How to work out LTV when remortgaging? We’ll cover that next in our remortgaging FAQs.
There’s lots of questions around remortgaging so here are some of the most popular ones that we can answer for you:
How to work out LTV when remortgaging?
If you bought your home for £100,000 with a deposit of £20,000 and a mortgage of £80,000, your LTV is 80%. Why? Because you’ve borrowed 80% of the property value from a mortgage lender, and paid the remaining 20% yourself as a cash deposit.
How long does it take to remortgage?
The remortgaging process usually takes 4 to 8 weeks once you’ve applied for the loan.
How much does it cost to remortgage?
If you’re staying with your current lender you might only have to pay a redemption fee for the existing mortgage. When you’re moving to a new lender you’ll pay for the property valuation, arrangement fees, and legal fees. The amount you pay varies.
Can I remortgage to release equity?
The short answer is – yes. When you switch to a new mortgage you can take advantage of the opportunity to release equity from your home. To do so, simply ask the current or new lender to increase the loan by the amount of equity you’re looking to release.
Can I remortgage to build an extension?
Yes. But it isn’t the only way to generate extra money for home improvements, which might cost you less. Before deciding, see if a capital raising mortgage or regular home improvement loan might suit you better.
Is Remortgaging Right for You?
Now you know exactly how to remortgage a house. Remortgaging is very much like mortgaging, involving similar legal, financial and loan agreement processes. It comes with costs attached, but it often costs less when you move to another mortgage product with the same lender.
You can use the equity released to fund all sorts of projects as well as home improvements and property development; maybe a holiday, a new car, or help for a child to buy their own home. A remortgage can either reduce your monthly repayments, or increase them so you pay the loan off faster.
Is it right for you? Strawberry Star can help with the remortgaging process – get in touch with is today to find out how.