If you’re a homeowner with a mortgage, you may be looking to relocate, resize, renovate or otherwise make any other modifications to your existing property. If that is the case, a remortgage may be in order.
Here, we’ll explain everything you need to know about remortgaging and explore the pros and cons of remortgaging your property.
What is a Remortgage?
A remortgage is a process that allows you to move your current mortgage from one lender to another or negotiate new terms on your mortgage with your current lender. In a way, you are restructuring your existing mortgage.
When you remortgage a property, the new mortgage is secured against this property, just as the previous one. However, you can use the new mortgage to pay off your previous loan.
Can You Remortgage?
Usually, most property owners are eligible for a remortgage. There are several factors that determine your eligibility for a remortgage:
- Your property’s value,
- The amount of time left on your current mortgage deal,
- Your income and debt levels.
You can consider remortgaging your property if you want to:
- Secure a better interest rate and bring down your monthly repayments,
- Switch to a different mortgage product, for instance, a fixed rate, to help with your monthly outgoings,
- Overpay your mortgage if your current deal won’t allow you to.
What are the Pros and Cons of remortgaging
There are many benefits to remortgaging your property when you do it at the right time, such as:
Reducing your monthly repayments
Switching to a new mortgage product with a lower interest rate can save you money on your monthly repayments.
If you have a discount rate mortgage and interest rates are rising, you could switch to a fixed rate mortgage instead. Similarly, if you are on a fixed rate mortgage and interest rates remain low and stable, you could switch to either a more attractive fixed rate deal or consider a tracker or discount rate mortgage
Optimizing your budget
If you remortgage to a fixed rate deal, you can make your monthly repayments stable well into the future. This can help with household budgeting and give you peace of mind in the event of interest rate rises from the Bank of England.
Releasing equity from your home
If you have equity in your property, you could look to release some of that money to carry additional home improvements. Equity is the money in your property’s value above the remaining mortgage secured on it.
For example, if your property is worth £200,000 and your remaining mortgage is £100,000, you have £100,000 in equity. You can release that money by selling your home and paying off your mortgage. You can then use the equity to buy your next property. But you can also release equity by remortgaging, in which case you don’t have to sell your house and move.
Lowering the loan to value on your mortgage
The loan to value (LTV) of your home is the percentage of mortgage secured on it against its value. Usually, the higher the LTV – the higher the interest rate you’ll pay on your mortgage. If your home has increased in value, you can remortgage against the new valuation you get. This means your LTV will drop and you could get a better interest rate.
What are the cons of remortgaging
After covering the pros of remortgaging your property, we will cover the disadvantages of remortgaging.
Even if you are not moving home when remortgaging, your lender or the new lender still needs to carry out new tests to ensure the mortgage is affordable for you. If your income or levels of debt have changed in the period after you took out your original mortgage, the lender may decide that the remortgage you’re applying for is not affordable. If you have moved from employment to self-employment or your salary has changed, this could affect their decision.
Paying more interest
If you decide to borrow more money against your home to fund home improvements you may end up paying more in interest over your mortgage term. In some cases, your monthly payments may increase.
Remortgaging your property may come with additional costs you have to pay. Examples of such additional costs include:
Early repayment charges – if your current mortgage deal is still running, you may have to pay an early repayment charge if you decide to remortgage. Usually, this is a percentage of your outstanding mortgage amount.
Fees for transfer to a new mortgage – when taking out a new mortgage on your property, you may have to pay: a mortgage arrangement fee, a property valuation fee and conveyancing fees if you’re changing lender.
How much can I remortgage my house for?
Most remortgages cover the amount outstanding on an existing mortgage. Whether you’re borrowing the same amount of money, or releasing some equity from your home and increasing your mortgage, the lender will treat it as a new application.
That means they’ll assess your borrowing capability, income and debt levels to decide how much you can borrow.
Is now a good time to remortgage?
If you are interested in negotiating a new mortgage deal, now may be a good time to do so. Interest rates are still not high and remortgaging may be a good idea.
If you are interested in remortgaging your property, you can speak to an independent financial advisor and mortgage broker to understand your options. They will help you determine if you can save money against your current deal.