UK Remortgages

Remortgage basics

What is Remortgaging?

Remortgaging is simply changing your mortgage deal or lender.

 

Why should I Remortgage?

With mortgage rates rising many consumers in the UK have remortgaged to try and find a way to cut repayments, switching their poor value mortgage to one that offers better value and saves huge amounts of money over the term of the loan.

 

Across the board interest rates offered by mortgage lenders can vary by a substantial amount, and therefore switching from one lender to another after your initial 'tie in' period is over can easily save you cash. Switching the type of mortgage product you have (i.e. from variable rate to fixed rate etc) can also provide an opportunity to lower your repayments, and manage your finances.

 

The most popular reasons to remortgage a property in the UK are:

To get a Better Mortgage Deal: - Save money by switching to a morgage provider offering a better interest rate, or cashback bonus.

To Increase the Size of Your Home Loan: - Remortgage to buy a larger or house, or to borrow money against your property as security.

Better Conditions: - Switch to a mortgage lender whose terms are more flexible (allow overpayment etc).

To Release Equity in Your Property: - If the value of your home exceeds the value of your mortgage, you might remortgage to free the difference in a cash lump sum.

 

 

When should I Remortgage my home?

Should I remortgage?

Remortgaging your property is only really feasible if your mortgage is a few years old. If this is the case then you need to shop around to see if your existing loan is still competitive.

 

Look at your financial circumstances every 6 months or so and compare mortgage rates on offer against what you are paying. Remember you will have to pay arrangement and legal fees when you swap to a new loan, so be careful to include this in your calculation.

 

 

A remortgage calculation example:

A homeowner has a £50000 repayment mortgage over 25 years. paying a standard variable rate around 6.5%, with monthly repayments of around £340.   He remortgages and gets a fixed rate loan with a 2 year discount rate of 4.5% and his monthly payments drop to £280, saving around £1500 over the 2 year period. The arrangement and legal fees are £500, so the homeowner is £1000 better off over all. If interest rates rise he has saved even more as he is now on a fixed rate.

 

 

Do you pay monthly or daily interest on your current mortgage?

If your current lender calculates your interest monthly then it may be better to wait until the end of the month before you switch. If you switch in the middle of the month then you may still be charged interest for the whole month. If you pay daily interest then it makes no difference.

 

 

Remortgaging to release cash from your property

Releasing equity in your property

If the value of your house has risen since your took out your mortgage then you could consider remortgaging to release some of this extra equity in your house.  The cash released could be used to pay off part of your mortgage and lower repayments, or pay off any other loan you may have at a higher rate. 

 

 

Remortgaging to borrow a cash lump sum

You may wish to renegotiate your mortgage in order to borrow more money and release the excess amount as a cash lump sum - maybe for home improvements etc. Remortgaging in this way will almost certainly result in a cheaper rate of interest than any other form of borrowing.

 

In the example below a property has been remortgaged in order to borrow £20,000 as a cash lump sum, and the monthly repayments have risen by £120 / month.

 

 

	Previous Mortgage	Remortgage
Property Value	£150,000	£150,000
Mortgage Balance	£100,000	£120,000
Equity Remaining	£50,000	£30,000
Cash Lump Sum	n/a	£20,000
Monthly Payment	£600	£720

 

 

Switching your mortgage deal or mortgage lender

Arranging your Mortgage

Remortgaging is far simpler, faster and easier than it used to be. However, there are some pitfalls and you should always be wary of any costs involved in switching.

 

You may find that you are charged exit fees by your existing lender and/or a setup fee by your new lender. On top of this you may have to deal with solicitor costs and maybe even valuation fees, even though you aren't actually purchasing a new property. In some cases though the new lender may offer to pay the legal and valuation fees for you.

 

All in all you need to take everything into consideration and work out carefully if switching your mortgage is to your advantage. Its not worth going through all the hassle if you don't save any cash after all!

 

 

Finding the best deal

The remortgage market is very competitive. In the current climate even if you have bad credit mortgage lenders will still be vying for your business, and in order to stay ahead of competitors the big companies are offering increasingly better rates on remortgage products.

 

This is where you can cash in, by comparing, switching and saving. Just a 0.5% saving equates to thousands of pounds over the term of your mortgage.

 

If you would like help finding a better remortgage deal Mortgagefox can scan the market for you and find a product that saves you money over your existing mortgage. If you would like to speak to an independent mortgage advisor to discuss your mortgage options then we can also arrange this.

There are is no obligation and both services are completely free.