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More and more UK homeowners are remortgaging to save money on their monthly repayments, or to raise money to consolidate debts.
Remortgaging isn't nearly as much hassle as most people think - particularly as our consultants will look after your remortgage for you - making it all even less effort than you first imagined:
Or read below for more information about remortgaging:
Why Remortgage?
In today's competitive market, many borrowers choose to switch their mortgage every few years in order to take advantage of the new rates on offer. Those that remain on the same deal for the full term of their loan could lose out on a range of potential benefits, not least the opportunity to reduce the total amount paid back, which could be a significant margin in some cases.
In simple terms, remortgaging involves switching your current mortgage to a new deal, arranged either with your existing lender or with a new lender. As a current homeowner you may want to consider taking this step for a number of reasons, such as:
To save money
If you're paying your lender's Standard Variable Rate (SVR), it's likely that your existing lender will offer a better rate and greater flexibility on other available products. This could allow you to save money on your monthly repayments, or to repay your mortgage sooner. And if your current lender doesn't offer better rates or greater flexibility on its other products, you may want to consider switching your mortgage to another lender, even if doing so would trigger early repayment charges payable to your existing lender, as this could still mean a net saving to you.
To raise money
Higher income or a rise in your property's value means you could increase your mortgage to help pay for major outgoings such as a wedding or your child's university costs, rather than borrowing separately, and in some cases more expensively, for the outgoing itself.
To avoid moving home
It can be cheaper and more convenient to adapt or add an extension to your existing home, paid for by remortgaging or a further advance, than to move home.
To consolidate your debts
Remortgaging can allow you to release some of the equity you hold in your home and consolidate other debts, such as a car loan or credit cards, which can attract higher rates of interest than that of your mortgage.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
Choosing the right remortgage deal
When considering what remortgage to choose, you will want to consider the deals on offer to you and the relative advantages these present to your circumstances. Mortgages usually offer one (and sometimes more) of a number of 'core' features, listed below:
Fixed rate
A fixed rate mortgage charges a set rate of interest for a predetermined period, and then usually reverts to the lender's SVR. This kind of loan offers you the security of knowing how much you'll be repaying during the initial period, and can make budgeting much easier.
Capped rate
A capped rate mortgage offers similar security to a fixed rate - since the rate you pay during the capped period won't exceed the capped rate - as well as the chance to benefit from any fall in mortgage rates within the capped period. However, the benefits of capped rate mortgages usually come at a price: rates are often higher than on lenders' comparable fixed products.
Discount rate
A discount mortgage offers a reduction of a given amount on the lender's SVR and if this rate changes, the rate you pay will fluctuate in line with it. Usually, the shorter the discount period is, the greater the discount. After the discount finishes, the loan reverts in most cases to the lender's SVR.
Tracker
Tracker mortgages give borrowers the certainty of knowing the rate they pay will move automatically in line with Bank Base Rates. This allows the borrower to benefit straight away from any cuts in these rates, even if, as is often the case, the lender delays reducing its SVR to reflect the reduction. Many trackers also offer flexible terms.
Cashback
A cashback mortgage pays an upfront lump sum, thereby allowing a borrower to pay for, say, home furnishings or to repay credit card debts, or to put down a deposit. The rate paid is most often the lender's SVR.
Droplock
A droplock mortgage is a discount or tracker mortgage which has an option to switch to a fixed rate at any point within the initial period without paying early repayment charges. This provides an ideal way to benefit from base rates when they're low, with the option to switch easily to the protection of a fixed rate should interest rates then look set to rise significantly.
Additional features
In addition to the core features listed above, mortgages can offer one or more additional features, such as:
Flexible
A flexible mortgage allows you to vary your monthly repayments to reflect your changing financial circumstances. Depending on the flexibility of the product, you can, without charge:
- Over - or under-pay, and/or
- Repay lump sums, and/or
- Take a payment 'holiday' to allow you to fund a large expense, such as a wedding or new car.
Payment holidays and underpayments are, of course, conditional - usually on the borrower adhering to, or exceeding, a predetermined repayment schedule. And many deals, even if not fully flexible, still offer the ability simply to overpay.
Current account
With a current account mortgage, your current account and mortgage are effectively merged, and your salary can be paid into your mortgage account. Interest is calculated on a daily basis, and when you pay money into your account the overall loan size is lowered, thereby reducing the amount of interest paid.
Offset
Like current account mortgages, offset mortgages allow you to offset the balance of your mortgage against any funds in a savings and/or current account held with the same lender, and pay interest (calculated on a daily basis) on the net balance between the accounts.
What are the steps involved?
Remortgaging is much simpler than buying a new home because the deeds of the property are already registered in your name. If you choose to change to a different deal with your existing lender, the process is even simpler.
And if you do choose to switch to a new lender, only a few steps are involved. If you choose to remortgage with John Charcol, even these few steps involve minimal hassle, since we help manage the process by liaising with lenders, valuers and solicitors on your behalf.
The lender will require a valuation to ensure the value of your property is sufficient for them to lend on.
You'll be required to make an application to the lender in the same way as when buying a property. The application has to be underwritten by the lender, who will require evidence that the loan to date has been maintained. They'll then issue you with an offer. Conveyancing work will need to be carried out, and many lenders will only instruct a firm of solicitors with two or more partners. During the conveyancing process, local searches will be conducted and a report and title will be sent to the new lender.Finally, the solicitor will ensure your previous lender is repaid when the new lender releases the new mortgage funds. If you're borrowing additional funds, the solicitor will release these to you on, or shortly after, completion.
What are the costs involved?
Remortgaging can involve less costs than those incurred when buying a property, since in most cases the following charges either won't apply or will be lower than when you first purchased your mortgage, including:
- Stamp duty - you won't be liable for this at all when remortgaging.
- Legal fees - solicitor's costs could be lower than when purchasing the property, since the legal process is less complex for remortgaging than purchasing.
- Homebuyer's report or survey - if you've undertaken a homebuyer's report or full structural survey when purchasing the property, you're unlikely to need to repeat this exercise when remortgaging.
- Other costs - other costs will apply (as below) but on some remortgage deals the new lender will even meet some or all of these.
When considering whether to switch mortgages, you'll need to bear in mind any early repayment charges that may apply on your existing deal, and the extent to which (if at all) these may reduce the potential savings to be gained by remortgaging.
Many of the costs of remortgaging are similar to those incurred when purchasing a property. These may include:
- Early repayment charges (applicable in some cases).
- Lender's arrangement fees.
- Booking and broker fees.
- Valuation fees.
- Legal fees.
- Higher Lender Charge (in some cases).
- Discharge fees from your old lender (often called a 'sealing fee').
Who shouldn't?
Many borrowers stand a good chance of saving money through remortgaging. But there remain some cases where applying for a remortgage is not a realistic option.
Where you have high Early Repayment Charges
If you have recently taken out a fixed rate mortgage or a discount mortgage you may find that early repayment charges make it very expensive for you to take your loan elsewhere in its first few years. These early repayment charges can stay in force long after the original fixed-rate or discount has run out. If you use our remortgage wizard you can work out whether the terms of your current loan don't sit well with a remortgage.
If you have a very small loan
Many lenders accept remortgage applications only if the loan required is above a minimum level of about £25,000. Fees may also be a problem with very small remortgage loans, as these may outweigh the small saving on offer.
If your employment status has changed recently
Lenders need to feel sure you will be able to repay the loan you take on, so they need to know your likely future income. If you have recently changed your work status from employee to self-employed, but have not yet had time to build up a reasonable track record for your business, you may find it difficult to get a good remortgage deal. Again if you use our remortgage wizard you can work out whether the terms of your current loan don't sit well with a remortgage.
Just use our online remortgage wizard to search for a remortgage product that suits you. You can compare the payments on the new mortgage against what you are paying at the moment, to see how much you could benefit by.
We've also developed a quick calculator which allows you to compare monthly costs of some of our Best Buy mortgages with your current rate.
Or, if you'd prefer, one of our expert, independent, whole of market mortgage advisers can recommend the mortgage that suits your needs and manage the application process for you.