How to Remortgage

Are you thinking about switching your mortgage? Whether you want to switch before your current mortgage rate ends or just find a better rate, knowing how to remortgage will help you decide if remortgaging is right for you.

When you remortgage, you switch to another mortgage with your current mortgage lender or take out a new mortgage with another provider.  If you do it right, remortgaging can help you get a much better deal that could lower your monthly repayments, help you pay your mortgage off quicker, or free up some money to spend on home improvements or consolidating debt.

What Are the Reasons for Remortgaging?

There are several reasons why you may wish to remortgage your home, for example:

• Your current mortgage deal is due to end - when your current mortgage deal ends, your lender may put you on their standard variable rate mortgage, which is usually higher. Remortgaging may help to move to a mortgage with a lower interest rate
• You’re on a high interest rate - if your mortgage is on a variable rate, your mortgage payments could increase with a rise in the Bank of England base rate. Remortgaging may help you find a more competitive mortgage deal
• Release equity - remortgaging can release equity from your home, which you can use to pay off debts or for home improvements
• Reduce your monthly mortgage repayments - if you shop around, you could find a mortgage deal that offers lower monthly payments to that you’re currently paying
• Fix your monthly mortgage payments - remortgaging can let you swap from a variable rate mortgage to one with a fixed rate to give you more stable monthly payments
• Opportunity to make mortgage overpayments - remortgaging can help you find a lender that offers more flexible terms, enabling you to overpay on your mortgage without incurring penalties
• Consolidate debts - mortgage interest rates are typically lower than what you may have on loans and credit cards. Combining your debts into your mortgage will reduce how much interest you pay and the number of payments you make. However, increasing the length of your mortgage could cost you more in the long term
• Remortgage to buy another property - If you want to purchase a second home or a buy-to-let property, remortgaging can help you raise the money you need for the deposit. This could, however, increase your monthly payments while reducing how much equity you have in the property
• Adapt to changes in your circumstances - If you’re splitting from your partner, have had a pay rise or need more money for a particular reason, remortgaging can help you find a better option that better suits your new financial situation

How Long Does It Take to Remortgage?

While the timescale for remortgaging will vary depending on the lender, it can take up to 2 months typically, sometimes longer if issues within your application cause a delay. If you want to remortgage before the end of your current mortgage deal, make sure you get the timing right to give yourself enough time to avoid moving to your lenders more expensive standard variable rate.

The remortgage timeframe will depend on how complicated your mortgage application is. Lenders treat remortgages as a new mortgage application. This means you’ll have to go through the standard hoops of applying for a mortgage, such as a mortgage interview, property valuation, credit checks and review of your income and expenses. Mortgage lenders are now stricter on income and affordability assessments and whether borrowers can still afford the mortgage should the rate increase. If your income or expenditure has changed significantly since you last applied for a mortgage, you may find it harder to get a remortgage.

If there are any queries or issues with the property valuation (for example ‘down valuations’ – where your lender values your property at a lower value), this may hold up the remortgage process as the lender may want to be more careful about lending to you above a certain loan-to-value threshold. If the value of your property has dropped below what is remaining on your existing mortgage, this could also cause further delay, and you may have to either wait for the price to recover or make up the shortfall yourself.

The legal and conveyancing aspect of the remortgage can also delay the process while waiting for the Land Registry, property, and financial information to be completed. Remortgaging with your current lender may be faster as it can be treated as a product transfer and avoid the extra legal work. 

How Much Can You Remortgage Your House For?

The amount you can remortgage for will depend on several factors. For example, a lender will want to ensure you can afford the new mortgage and will check your income and expenses. They’ll also look at how much equity you have in your home. If your home has increased in value since you took out your current mortgage and you've kept up with your repayments, you should have built up a reasonable share of equity that you can draw on.

Each mortgage lender has its own formula for calculating how much it’ll lend borrowers. However, in general, you can expect your mortgage provider to add together your basic salary and a share of any other income you have. This typically includes money from things like commission, bonuses, benefits and a second job if you have one. To calculate your disposable income, it looks at your general outgoings, including debt repayments, school fees, maintenance payments, utilities, groceries, and other household expenses. Your disposable income must cover both the new mortgage and mortgage payments if the rate rises by 3%. This ensures there’s a sufficient cushion should there be a rate rise.

Your mortgage provider may decide to reduce its initial figure to ensure you can comfortably afford the remortgage and to give you some breathing space should your circumstances suddenly change. 

Remortgaging can be more difficult if you’re in arrears on your current mortgage. If you’re in arrears or think you’re about to go into arrears, speak to your lender as soon as possible.

Insurance for Mortgages

Keeping up with your mortgage payments is vital to ensure you don't lose your home. Your mortgage is likely to be one of the biggest loans you’ll have, so you may wish to consider taking out mortgage protection insurance. This will ensure that even if there's a sudden unexpected change in your circumstances, such as losing your job or becoming seriously ill, the payments on the mortgage are still covered. Mortgage protection policies are often taken out in conjunction with taking out a mortgage. There are 3 main types of mortgage protection insurance you may wish to consider:

• Life insurance - life insurance pays out to your nominated person, such as a close family member, if you die
• Income protection - income protection covers part or all your regular income if you become too ill to work
• Critical illness cover - this will also pay out if you become very ill and unable to work

If you need advice on how to remortgage and what options are available to you, speak to one of our experienced advisers at John Charcol. We’ll discuss your requirements with you to help you find a remortgage solution that's right for you. Give us a call on 0330 433 2927 on enquire online today.