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How does remortgaging work?

The single most important thing about a mortgage deal is that it works for you.

You should be sure that you’re getting the best value for money with the lowest rates over the shortest time possible. If, however, you’re getting the distinct feeling that your current bank or other mortgage provider could be offering you better mortgage terms than your current deal, it may be time to consider remortgaging. Here we’re looking at the benefits of a remortgage and asking “How does the remortgaging process work?”

What is a remortgage?

Remortgaging means switching banks or mortgage providers to get preferable mortgage terms to those of your outstanding mortgage. Usually, that involves saving money with lower fees, smaller monthly payments or cheaper interest rates. Sometimes though, it might also mean switching to a bank or other mortgage lender that allows you to pay extra money to clear the debt faster. Maybe you want a mortgage deal that offers more flexibility with your mortgage payments than your outstanding loan? Perhaps you want to release equity in your home? Whatever the case, there’s a bank or mortgage provider out there offering mortgage terms or remortgage options to better suit you.

Why should I remortgage?

You want to save money with a cheaper mortgage rate

Whether it’s phone or TV packages, new customers get all the best deals, don’t they? That’s the case with mortgages too. New customers will often be given more competitive rates — an initial deal — for the first two to five year period of their mortgages. In time, they’ll be bumped onto the lender’s Standard Variable Rate. This variable rate mortgage likely has a higher monthly payment than what those customers were paying and more than what they could be paying if they switched mortgage lender. Shopping around before your current deal period ends can be a good way to save a great deal of money and reduce your monthly costs. There are caveats though.

You may be in line for substantial early repayment charges and arrangement fees (aka the product fee) for switching bank or mortgage provider. These can be up to 5% of your outstanding mortgage balance. There are also solicitors and valuation fees to be factored into the remortgage cost. If your outstanding mortgage is below a certain threshold or if you don’t have much time left, this might mean that repayment charges and exit fees could cancel out any savings you make on your current deal. It may not be worth it unless you still have a larger mortgage. For a large outstanding mortgage though, it could mean that you can save hundreds on your monthly payment. Could it be time to start checking-out mortgage calculators and remortgage options?

Your house price has risen

With rising average house prices, your home might be among those which has seen its value climb steadily in recent years. If so, you may be in line for more favourable mortgage repayment rates. Your Loan-to-Value ratio (LTV) is the sum you borrow compared to the value of the property. Say, for instance, you’ve saved a 10% deposit and need to borrow the remainder; this means your LTV is 90%. Generally, the higher the LTV, the higher the interest rate and the more expensive it is for you.

Checking mortgage calculators will show you what kind of mortgage payments you could be paying regardless of whether the bank has you on a variable rate mortgage or a fixed-rate mortgage. How does your current deal compare? If you’ve been working hard to pay-off your mortgage while at the same time the value of your home has been rising, it probably means that your LTV has come down. You own greater equity in a house that’s worth more than when you bought it. In cases like this, it can be worth remortgaging to make savings on your monthly payment brought about by a lower LTV.

Remortgage to release equity

If you’ve had your current mortgage for some time, the chances are, especially with rising house prices, there’s quite a bit of cash tied-up in the value of your home. Remortgaging can be a useful way to release some of that equity in the form of a lump sum.

Do you need to borrow more money for home improvements or to consolidate debts like personal loans or other financial commitments? Perhaps you want to remortgage to buy another property? It could be time to look for some mortgage advice: remortgaging to release equity is often a very cost-effective way of borrowing for major expenditure and raising extra money. This may not be suitable, however, for those in negative equity or for those who still have a high LTV ratio. Remember too, that converting short-term into long-term debt could mean that you end-up paying more in interest payments over time, so be sure to get some professional advice before you do it.

You need a mortgage to suit your circumstances

Changing career? Going back to education? Got some extra cash burning a hole in your pocket and want to make higher mortgage payments? Do you feel like it’d be easier to budget your monthly costs with a fixed-rate mortgage? Maybe you’d be better temporarily switching to an interest-only mortgage? Depending on your personal circumstances, you may be able to change from an interest-only deal to a full or part repayment loan now that interest rates have decreased. If your current mortgage doesn’t suit your circumstances, there are plenty out there which could, and a broker is well-placed to give you the best mortgage advice on a remortgage deal. Remortgaging could give you the flexibility you need to pursue your personal goals, invest your extra cash or pay-off other personal loans at much lower rates. If you feel like your current deal is holding you back, ask yourself: “Is it time to remortgage?”.

Getting ready to remortgage

So you’ve run the numbers through the mortgage calculators, but you’ll still need to do a little homework before you can begin the remortgaging process. Before you speak to either a bank’s mortgage adviser or a mortgage broker, you should think about the following questions.

What do you want from a mortgage?

Take a look at some of our reasons to remortgage above. Do you just want a cheaper mortgage rate than the current deal on your outstanding mortgage? Is mortgage flexibility your primary concern? Do you want to consolidate debt, personal loans or borrow extra money? Are you on a variable rate mortgage and think a fixed-rate mortgage could be more suitable? Do you need to switch to an interest-only mortgage for a while, or convert your interest-only mortgage to a repayment loan? Are you curious about your LTV? Want to release equity? Whatever the answers, there are mortgage options to suit you.

How much is my home worth?

With rising average house prices, be sure to get your home professionally valued before embarking on the remortgaging process. The up-to-date value of your home will determine things like LTV, your total equity in the property and interest repayments. This is especially important if you want to release equity in your home. Those in negative equity, however, should seek mortgage advice before starting the remortgage process.

In partnership with Hometrack, Coreco have access to their market-leading Automated Valuation technology and can produce a personal guide to the value of your home. Contact us now if you would like to receive one of these reports.

What does it cost to remortgage?

Remortgaging may incur substantial costs like repayment charges and legal fees from your current lender. Given that there are usually early repayment and arrangement fees to contend with, you’ve got to figure out if the costs and exit fees of remortgaging outweigh the savings you’ll make. Most people remortgage when their current product expires to avoid penalties, and we recommend you speak to a broker and start the process six months before your current rate expires to ensure the timing is right and you get the very best rate.

How’s your credit score?

Any potential mortgage lender will check your credit score as an indicator of future behaviour like your ability to meet your mortgage payments on time. A good credit history and credit report are important because if your credit score has suffered due to missed payments on an outstanding loan (i.e., you have bad credit), it may make it more difficult to get a remortgage deal preferable to what your outstanding mortgage offers.

How the remortgage process works

The mortgage calculators have spoken, so, when you find a lender whose mortgage product ticks your boxes, what happens next? What are your remortgage options? How does the remortgage process work?

Time

In terms of time, you’ll need to get in touch with any potential mortgage providers about four to six months before you want to switch. That gives you and the broker enough time to find the best remortgage deal, show you the most competitive mortgage options and give you the soundest mortgage advice. Afterwards, it’s a pretty straightforward process.

Agreement in principle

This is a preliminary step towards mortgage approval. Based on a few details, but not yet including a full credit report, you can find out if a lender is potentially prepared to lend you the sum you need. If so, you have an Agreement in Principle. You don’t have to choose a specific product yet, and a good broker can do this online with the lender for you.

Calculating remortgage costs

So, what does a remortgage cost? In addition to any exit fees and repayment charges from your outstanding mortgage, you may face other costs when applying for a new one. These could include application fees and arrangement fees (product fee) to your new lender, but property valuation fees and solicitor’s fees may also have to be factored-into the remortgage cost. While most lenders will now offer a free valuation and free legal fees as part of any remortgaging deal, if you need to move quickly it is often better to use your own solicitor. Sometimes a lender will instead give cash back towards this cost.

Application

Mortgage applications are the most time-consuming part of the remortgaging process. In addition to mortgage application forms, you’ll need to gather any necessary documents relating to your income, personal circumstances, outstanding mortgage, other debts and financial commitments. Even tiny mistakes can complicate mortgage applications, though this handy guide should help.

Once you have the paperwork in order, you can submit your mortgage application for approval.

Mortgage Approval

After doing its due diligence including delving into your credit history with a full credit check, the new mortgage provider will hopefully approve your application. This part is essentially just like buying a house, and you’ll likely need to get your solicitor involved to complete the legal aspects of the transaction.

Choosing a mortgage provider

It pays to shop around for the best mortgage deal and remortgage options. Easier said than done, you might say. Mortgages are often mired in jargon, frightening warnings, complex sums, and hidden fees. You could easily be forgiven for not wanting to even think about it.

Thankfully, there’s a much easier way than going it alone. That’s where a mortgage broker like Coreco comes in. With 25 years of experience, access to over 90 lenders, and 12,000 products, you can be sure that Coreco will offer you the best mortgage advice, explore the most suitable mortgage options and get you the most competitive remortgage deal possible, even from your existing bank or mortgage lender.

Let us help with your remortgage, and find a remortgage deal that works as hard as you do.