Remortgage guide
Currently, mortgage interest rates are quite high compared to previous years. Therefore, if you’re considering altering your existing mortgage, it’s crucial to approach it carefully. Our guide provides insights on when it makes sense to remortgage, the various types of mortgages available, and how to maximize the benefits of the deals on offer.
Remortgage need-to-knows
If you’re curious about what’s inside before diving into the full guide, here’s a brief overview and introduction to each section. But first, let’s emphasize a key point:
“If your mortgage represents your largest expense, reducing its cost could be your most significant opportunity for savings.”
1: Consider if remortgaging is right for you – there are several reasons to do it
One of the main reasons to consider remortgaging is to save money, though it’s not the only factor. It’s crucial to focus on finding the best deal tailored to your needs, rather than just the most attractive offer available. Our Remortgage guide outlines several reasons why remortgaging might be beneficial, including:
- Cost savings, particularly if you are currently on your lender’s standard variable rate but there are more affordable options available.
- Your existing mortgage might no longer meet your needs. You might be looking for a mortgage that allows for higher overpayments or offers more flexibility in terms of missed payments.
- You may need to borrow more money, but your current lender may not be willing to extend additional funds.
Before proceeding with a remortgage, it’s important to assess whether you are a suitable candidate. Our guide emphasizes the need for substantial equity, a strong credit score, and the ability to manage repayments if interest rates were to rise significantly.
Remember, switching lenders isn’t your only option for a new mortgage deal. You might also consider negotiating a new deal with your current lender through a process known as a ‘product transfer.’ While this isn’t technically a remortgage, it can still be a viable solution. Explore the differences between product transfers and remortgaging to determine what might work best for you.
2: Remortgaging won’t be right for everyone
Although remortgaging can often lead to reduced costs, it’s not always the ideal option for everyone—and in some cases, it might not even be feasible. Our Remortgage Guide outlines several scenarios where remortgaging might not be the best choice, such as:
- When you’re already benefiting from a favorable deal (which is especially relevant now, as interest rates are significantly higher than they were two or three years ago).
- If remortgaging would incur hefty early repayment penalties.
- When you need to borrow more than 90% of your property’s value, which results in fewer and more costly deals.
- If there has been a change in your personal circumstances (like a reduction in income).
- If you currently have a poor credit rating (refer to our Improve Your Credit Score guide for more information).
3: How to prepare yourself for remortgaging
Before you begin the remortgaging process, it’s essential to check a few critical details about your existing mortgage. Our Remortgage guide provides a comprehensive overview of these checks, but here’s a brief summary:
- Early Repayment Charge: Determine if you’ll incur any charges for settling your mortgage early. These penalties can be substantial, often amounting to thousands of pounds, particularly if you’re exiting an introductory deal like a five-year fixed rate.
- Exit Fee: Find out if there is an exit fee associated with leaving your current mortgage. Typically, this fee ranges from £50 to £200.
- Outstanding Balance: Confirm the exact amount you owe to your current lender.
Additionally, this section covers estimating how much you might be able to borrow from new lenders, the equity you’ll need in your home to secure the best offers, and strategies to reduce your loan-to-value ratio. For a quick explanation on how a lower loan-to-value ratio can lead to more favorable mortgage rates, refer to our guide on “How much can I borrow?”
4: Do all you can to boost your chances of mortgage acceptance
Securing any type of mortgage is increasingly challenging, especially amid the current cost of living crisis. Having previously obtained a mortgage doesn’t guarantee an easy process this time around. Our Remortgage guide offers strategies to enhance your appeal to lenders, including:
- Boosting Your Credit Score: Improve your credit profile by registering on the electoral roll, financially separating from former partners, avoiding missed payments, and other steps. For more details, see: Improve your credit score.
- Demonstrating Affordability: Show your financial stability by providing proof of income and undertaking a financial overhaul (curious about how to conduct a financial overhaul?).
- Implementing Additional Strategies: Consider our additional advice, such as contributing an extra £100 to your current equity, canceling unused credit cards, and avoiding your overdraft.
5: Be prepared for extra scrutiny if you’re self-employed or a contractor
Self-employed individuals have historically faced additional challenges when securing a mortgage. Our Remortgage guide provides insights into what to anticipate during the application process, including the number of tax returns and business accounts you’ll need to submit.
For further details, check out our guide on Self-employed mortgages.
6: Decide what type of mortgage you want – fix, variable, tracker, or other…
After securing assurance from a lender about their willingness to offer you a mortgage, the next step is to determine the type of mortgage that best suits your needs. Our comprehensive guide details what a mortgage entails (in case you need a refresher), how it is ‘secured’ by your property, and provides an in-depth comparison of various mortgage options, including their advantages and disadvantages.
- Repayment and interest-only mortgages.
- Fixed-rate and variable-rate mortgages (such as trackers).
- Offset mortgages.
- Portable mortgages.
7: If you’re moving home then you won’t actually be remortgaging…
If you’re relocating, you may not need to remortgage your current home. This doesn’t necessarily mean you have to secure a new mortgage, either. Initially, check if your existing mortgage is ‘portable,’ which would allow you to transfer it to your new property. If it’s not portable—or if you choose not to port it even if you can—then you’ll need to apply for a new mortgage, much like a first-time buyer would.
For more details on these options, refer to our Remortgage guide and our Porting a Mortgage guide.
8: Don’t forget to factor in other costs, including mortgage fees
Crunching the numbers is crucial when considering a remortgage, as there are often costs associated with the new mortgage as well as potential penalties for exiting your existing one. Our Remortgage Guide outlines the fees you might encounter, but here’s a quick overview:
- Arrangement Fee: This fee, charged by the lender for processing the new mortgage, typically amounts to around £1,000.
- Booking Fee: Some lenders impose a separate charge to secure the mortgage deal, though this practice is becoming less common. If applied, expect to pay between £100 and £200.
On a positive note, valuation and legal fees are generally waived with a remortgage. Nevertheless, it’s essential to compare the expenses of your current mortgage with those of a potential new one. You can use our Compare Two Mortgages calculator to help with this comparison.
9: How to get a remortgage deal step-by-step– including going solo or via a broker
When pursuing a remortgage, you generally have two primary routes: applying directly through a lender or using a broker.
Our comprehensive Remortgage guide offers an in-depth look at both methods. While applying directly can be a viable option, enlisting the help of a broker is often advantageous. Brokers can efficiently narrow down the best deals, sometimes offer exclusive deals only accessible through them, and can recommend mortgages tailored to your unique situation. This chapter covers:
- The different types of brokers and the deals they access.
- Which brokers provide their services for free and the key questions to ask them.
- How to independently compare a broad spectrum of mortgage options if you choose to go it alone.
10: Watch out for the hard sell on insurance
To offset reduced earnings from prominent mortgage rates, certain lenders may increase prices on related insurance products. In this chapter, we will explore the insurance policies that might be aggressively marketed to you, provide insights into typical costs, and offer tips for finding the most affordable options. Consider looking into the following types of insurance:
- Mortgage payment protection insurance.
- Buildings and contents insurance.
- Life cover.
Looking for more mortgage help?
We’ve got lots of other helpful guides and tools:
- Cheap mortgage finding. Step-by-step on how to find the top deal for you.
- Mortgage best buys. Our tool compares the top deals on the market.