Many people may find themselves in a difficult financial situation at one time or another. But what do you do when money is tight and you need cash right now?
This is a moment when many homeowners start considering remortgaging their home. Whilst there are many mortgage providers who will offer you good remortgage deals, it is worth knowing what you’re in for if you decide to remortgage your house.
We’ve gathered all the information you need to know about how remortgaging works in this article. This guide will show you why you might want to consider refinancing your home and answer several questions about how to compare remortgage plans and get the best value on your property.
What is a Remortgage?
Put simply, a remortgage is the process of refinancing your property with a new mortgage loan. This means that you, as a homeowner, take out a new loan against your home, which serves as collateral. A portion of the funds loaned to you usually go towards pay off an existing mortgage.
Most people consider remortgaging their property either to replace an existing mortgage, or to borrow money against the home.
Why should you remortgage?
If you find yourself wondering ‘When can I remortgage?’ – there are various scenarios where it makes sense to consider remortgaging your property.
The main reason that any financially-savvy homeowner choose to remortgage is to save money. Changing lenders is a good opportunity to reduce your monthly payments dramatically and save in the long run. It might even help pay off your mortgage sooner, thus reducing the overall interest you need to pay back.
Like any other product, it’s worth shopping around for the best deal and consider looking for professional remortgage advice before you decide on the one that is right for you. Here are the big reasons why you should consider remortgaging:
Your fixed term has finished
Most mortgages have an introductory period of fixed-rate interest in the beginning, which means your monthly repayments stay the same. Once you reach the end of this period, your interest rate is highly likely to go up, and so are your payments each month.
Some lenders don’t inform customers of the change, and you simply notice the higher payments once they take effect. Remortgaging can give you a new period of fixed rate interest, making managing payments easier to manage payments for longer.
Not happy with your current mortgage deal
If you don’t like the conditions of your current mortgage deal, a remortgage may be a suitable option. Some mortgage lenders have flexible terms, which means that conditions that once worked for you don’t anymore. They may impose restrictions on the amount you can overpay by every month or the inability to take a payment holiday.
Switching lenders comes with some remortgage fees you need to cover, but if you are unhappy with your current situation –remortgaging might be a good option for you.
Change in circumstances
A recent job change, unemployment or a complex family situation are all valid reasons to look into taking out a remortgage. Especially if your mortgage isn’t compatible with your current earnings.
Even if you find yourself in a more favourable financial situation by starting to earn more, a remortgage can help you repay your home quicker. If your current mortgage won’t let you repay as much as you like due to a cap on overpayments, remortgaging is a great option to do just that.
How does Remortgaging Work?
If you have already decided that remortgaging your home is the right way to go, the next step is to compare remortgage deals on the market and pick the one that suits your needs.
When considering how to remortgage your property, keep in mind that terms will vary from lender to lender.
Many times, the easiest way to apply for a remortgage is by simply going to your current lender. If you have been timely with your monthly payments until now, your chances of being approved for a remortgage are very good. Most lenders will be happy to have you sit down with a financial officer who will look over your current situation and then offer remortgage advice.
When you consider remortgaging your property, it is important to consider your eligibility for a remortgage. Are you eligible for a remortgage? And how much can you borrow?
These are all questions that your lender can answer when they look at your current mortgage terms and conditions, repayment plan, financial situation and remortgage application.
Each lender has his own criteria for lending money. This means that even if some lenders turn down your remortgage application, others may not.
Typically, to determine your eligibility for a remortgage, a lender will examine your ability to pay back the money you are looking to borrow. This means they will look at your income, your on-going expenses and dependent family members as well as your overall financial situation.
The Different Types of remortgages
When you start comparing remortgage products, it can be overwhelming to choose among the many types of mortgages available. It is helpful to understand that there are several basic mortgage types you can choose from.
Fixed Rate Remortgage
As the name suggests, fixed rate remortgages offer a set rate of interest and a consistent monthly payment throughout the life of the loan. The majority of these remortgages are offered in two, three, five, ten or twenty-five year terms. At the end of the fixed rate term, the remortgage will automatically revert to a standard variable rate product, unless you decide to remortgage to a different type of loan at that time.
Standard Variable Rate Remortgage(SVR)
The standard variable rate remortgage is the most common type of mortgage product in the UK. The actual remortgage rates can vary widely between banks as they are at the discretion of the bank. This means that you can benefit if the rates fall, even if the mortgage rates don’t bottom out quite as low as market rates might.
Tracker Rate Remortgage
These mortgage products are similar to the SVR mortgage, but the rates are tied directly to the Bank of England base rate. When the base rate goes up or down, this affects your mortgage. This is becoming a popular remortgage option with lenders and borrowers alike.
When should you (and shouldn’t) remortgage?
Remortgaging your property is more common than you think but there are certain scenarios when it makes sense to remortgage. If you find a better rate than the one on your current mortgage, then remortgaging may be a good option for you.
If you find that your financial situation has improved and you want to make overpayments it may be worth looking to remortgage.
Remortgaging can also be a relatively quick way to raise additional funds for home improvements or new car.
While these are all valid reasons to consider switching your current mortgage deal for a new one, there are situations when it is better to stay with your existing mortgage.
If your outstanding mortgage balance is small, you already have a competitive mortgage rate or face a high repayment charge, then remortgaging may not be in your best interest.
Looking into taking out a remortgage is also not a good idea if the value of your home has dropped or if you have very little equity in your property.
Remortgage Fees you need to know
Remortgaging is not free and you may end up paying hefty fees to leave your current plant. Other than that, when you’re looking to take out a new mortgage on your property, you will need to cover the arrangement fee for the lender. In the past, this covered a lender’s administration costs. Now it’s the key part of the true cost of a mortgage, along with the interest rate.
Additional remortgage fees may apply, such as the ‘deeds release fee’ or an ‘admin charge’, which is used to pay for your current lender to forward on your title deeds to your solicitor. A booking fee also referred to as a reservation fee, will be applied to secure a mortgage deal in case anything changes in the meantime. Sometimes, there may be legal fees and a valuation fee as well.
Once you have familiarized yourself with the process and set your mind on remortgaging your property, it’s normal to wonder how soon you can remortgage after buying.
The process of applying for a remortgage is very similar to a mortgage, although it is generally much quicker as you aren’t actually moving house. If everything goes smoothly and you’re approved, your remortgage could take between 30-60 days.
If you get a referred decision or there are any other delays in getting paperwork through, it could be longer.
Remortgaging does offer certain financial flexibility when you use it correctly and if your situation warrants applying for one.
If it sounds like remortgaging could be the right move for you, be sure to turn to a professional for remortgage advice and discuss your circumstances with them so they can refer you to a suitable lender.