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Remortgage
Charles Breen explains the process of remortgaging.
What is a remortgage and how does it differ from a regular mortgage?
A remortgage is where your current deal has run out and you want to secure a new product. It could also be where you have no mortgage on the property at all and you’re wanting to borrow money against it. That would also be classed as a remortgage.
Maybe you currently have a mortgage and you want to draw out some more money for home improvements – an extension, buying a caravan, an RV or something like that.
Basically it’s just refinancing borrowing you already have, or taking out new finance on a property you already own.
How does the process of remortgaging work in the UK?
It’s very similar to how a purchase works for a First Time Buyer or home mover mortgage. You would go to an advisor, see about your affordability, then we would look at which lenders will lend you the amount you require.
We would look at the lowest rates to find a suitable lender, taking into account your credit commitments, your credit score and what your plans are. Maybe you want to downsize in the future, or be mortgage-free by age 65 or 70 – we’ll look at all the different options.
It’s all about viewing you as a whole and seeing what’s going to be best for you. We look at your finances, what we can borrow and try to get you the lowest rate out there for you.
How long does it take to remortgage?
If you are one of our clients, we try to begin the conversation six months before your fixed rate runs out, so we can lock in the best rate possible. If rates rise, you’re laughing – because you’ve secured a really good rate in comparison to what’s available now. If they fall, we move you to a lower rated product. It just gives you more options.
The mortgage offer can take anywhere between a week to six weeks, even two months – it all depends on the complexity of your case.
What are the main reasons why people might choose to remortgage?
Like with your car insurance, you will want to shop around. If your fixed product, for example, has come to an end, it’s a good idea to see what’s out there. Like insurers, lenders don’t pay you for loyalty. You don’t really get a discount for sticking with them.
Also, you might want to raise funds for something – to consolidate some debts, do some home improvements, use the money for a wedding, gift it to children as a deposit to purchase their own house, buy a Caravan or a holiday home. There’s a whole host of different reasons that people would want to remortgage.
What happens to my existing mortgage when I remortgage?
Your mortgage is like a bank account. Once your mortgage ends, they close that account.
Let’s say for argument’s sake you’re with Halifax and you’ve moved to Skipton Building Society. You open a new account with Skipton. Your old mortgage would close at 11:59 on 31 March and your new one opens at 00:01 am on 1 April. They just move the money and the liability across from one to the other.
What happens if I don’t remortgage after my deal expires?
You move on to a variable rate. It’s normally a higher rate than a fixed rate product, so you end up paying more for the same thing – when instead you could fix it and pay less.
Banks and casinos always make money – bear that in mind. It’s best to shop around to try to get a better deal. I believe 25% of people in the country are on their standard variable rate. They’re paying an awful lot of money every month when they don’t need to be.
What should I consider when deciding whether to remortgage?
It’s all about your goals. If you’re just wanting to get the best rate available, that’s something to consider. If you want to raise more funds, consider whether you are happy with your lender. If so, we can do a ‘product transfer’ – which is just moving you from your current product to the next best option with your lender.
That can help if you don’t want to go through the hassle of a full remortgage. A mortgage advisor will give you those considerations and we lay out the pros and cons to you. We give you advice on what is potentially best for you.
Can I remortgage to consolidate my debts?
Yes, you can. You could borrow more to pay off some debts. Some lenders allow it, but not all of them will do it. Some lenders will accept it for secured loans, but not for credit card debt. Others will allow you to consolidate credit card debt as well as personal loans etc.
But yes, you are able to consolidate debt. You need to think carefully before you add short-term debt like a loan or credit card onto a long-term mortgage, because you end up paying more interest.
The advisor will go through it with you. We’ll explain the pros and cons, how much extra your monthly payments would be, how much more you pay in interest and whether it is actually feasible and right for you.
If you had a 0% credit card, for example, it would not be good advice to add that debt onto a mortgage. You’d be taking something that has no interest on it and putting it onto a finance agreement where interest will be charged for years.
Can I remortgage if I have bad credit?
Yes, you can. There is a lender out there for almost all situations. If it’s a default or a CCJ, lenders will accept you depending on your loan to value and income.
Lenders will also do remortgages. They may not be at the most competitive rate but that would be something you would discuss with your mortgage adviser.
Will I have to pay any fees or penalties when remortgaging?
If you’re on a variable rate there should be no fees payable as this is a monthly contract with the lender. There’s no penalty to get out of it.
Within your fixed period, usually there are ‘early redemption charge’ penalties. They are laid out in your initial mortgage offer. Your broker will go through these with you – but that is something your adviser will take into consideration. If you have a £2,000 penalty, it may not be worth moving to a new rate.
It may be that you’re better off staying with your current lender and exploring the option of a further advance. That is another way of pulling more money out of the property if that’s what you wanted.
If you want a better rate, we need to assess whether you will actually save money in the long term. So it’s very important to have a conversation with a professional before you decide to change rates – it may not be suitable for you.
What are the current interest rates for remortgaging?
They’re ever changing. Literally every morning we get emails telling us the new rates. Here in September 2023 rates are slightly decreasing from what they were – they are getting a little bit better.
But you need to speak to your mortgage advisor to find out what rates are currently and also which ones would be applicable to you. It may be that you do not meet the criteria for the lowest rates.
Sometimes our clients have gone to comparison websites and found very competitive rates – but they don’t realise that these are actually postcode restricted. It might be that those rates are only available if you’re in Lancashire.
That’s why you need to get advice – because you could start an application and get declined straight away because you don’t live in the right post code.
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How much could I potentially save by remortgaging?
It depends on how large your mortgage is and what rate you were on – it could be considerable if you were on a 9% interest rate, for example. Perhaps you were with a specialist lender and then moved to the variable rate – which could possibly be even higher.
Remortgaging at today’s rates could end up saving you a considerable amount. It’s all relative to what you currently have. If you’re on the standard variable rate, the savings are considerable if you move to a fixed, tracker or discount product.
Again, you’d want to discuss all of this with your mortgage advisor, but you can save. It’s good to have conversation and be aware of all of the options before you make a commitment, so seek professional advice.
What documentation will I need to provide when remortgaging?
As with a normal purchase mortgage, first you’d need three months’ bank statements, three months’ payslips, photo ID and your credit report. From there we’re able to make the assessment and submit an application.
If you’re self-employed we would need your latest year’s accounts. That would all be part of a conversation with your mortgage adviser, long before you submit anything.
Can I switch lenders when remortgaging?
It’s normal to switch lenders because you’d be searching for the best rate – and that’s not always with your current lender.
The game is to move around and search for low rates. If that is with your current lender we would then do a ‘product switch.’
In a remortgaging process, because we are doing it six months in advance, we can submit an application with, for example NatWest. If interest rates come down, we would look at your options again. Even though we’ve submitted an application with NatWest, maybe your current lender, Nationwide, comes back later with a really good rate. In that case we would cancel that mortgage with NatWest and stay with Nationwide.
A mortgage advisor looks at all the options for you – and keeps on looking at the market. We’ll keep switching you to the best rate and most suitable deal at every point.
Will I need a new valuation or survey when remortgaging?
If you’re moving to a new lender, yes. A lot of the valuations, though, are done remotely. They’re called desktop valuations and most big lenders now have brought this in. It’s done automatically in the background.
That makes the remortgaging process a little bit easier for you – you don’t have to work around a valuation appointment.
Can I remortgage if I’m self-employed or a contractor?
Yes, you certainly can. The self-employed need their accounts and SA302 from HMRC. That will all be discussed with your mortgage advisor before applying.
If you’re a contractor, different lenders will use a different combination. Some would want you to use your self-employed accounts. Others will go off your invoices or payslips. If you’re in the Construction Industry Scheme (CIS), some lenders will even take 52 of your payslips for a full, annualised amount.
Others will take four to six – again that would be a discussion with your advisor. We know the criteria and can tailor your situation to get you the right deal.
What happens if my property value has decreased since I initially obtained my mortgage?
As long as you’re not in negative equity, you’d just remortgage on a different loan to value. That could affect your interest rate, but it’s still possible to remortgage. You could either stay with your lender and do a product transfer, or remortgage with a different lender.
How often can I remortgage my property?
As often as you want, really, but most people wait until their fixed product runs out because it’s the most cost effective solution. But if you wanted to, you could do it nearly every six months.
Some lenders will allow you to remortgage from day one. Again, it needs to meet lenders criteria, as everything does, but you can do it as often as you wish. But most people wait until their product runs out.
What are the advantages and disadvantages of fixed rate versus variable rate remortgages?
The advantage of a fixed rate is that you know exactly what you are paying every single month. So you’ve got that certainty. It allows you to budget better.
The disadvantage is that you’re locked in – so if rates did decrease you’re stuck. To get out early you will need to pay the early repayment penalty. With a variable rate, it can go up and down. If it’s following the Bank of England base rate it’ll move as they announce changes to the base rate. A discount rate follows the lender’s own variable rate. So with variable rates you have less certainty.
Sometimes discounted rates and tracker mortgages have slightly better rates, so you make a little saving – but there is more volatility in how much you’re paying. You get about two weeks notice before the change occurs.
Can I remortgage if I’m nearing retirement age?
Yes, you can. Some specialist lenders will do over 50s mortgages, and standard high street lenders will use your current income up to the age of 70 or 75. Some will do it until 80. Again, you should explore the options with your mortgage advisor, but it is possible. I’ve helped people in their late 50s where we’ve used high street lenders until the age of 80.
Over 50s mortgages are specialist products, for people who need to stretch out their terms. A lot of people took interest only mortgages in the late 1990s and early 2000s who are coming to the end of them.
If they haven’t been paying off their mortgages as they intended, they now need a product to help them. Lenders have stepped in to make sure these people are not in a sticky situation.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up with your mortgage repayments.
You may have to pay an early repayment charge to your existing lender if you remortgage.
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