How does re-mortgaging work?

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remortgaged house in the united kingdom

Remortgaging is the process of switching your existing mortgage to a new deal, either with your current lender or a different one. It’s a somewhat controversial topic because it’s unclear whether it’s always beneficial to remortgage.

While it can potentially save you money in the long run, it also comes with fees and costs that may outweigh the savings. The decision to remortgage should be carefully evaluated based on your specific financial situation and goals.

What banks are able to remortgage your property?

Here’s a table featuring the top banks in the UK that offer remortgaging deals:

Bank Name Link re-mortgaging deals
Nationwide Visit remortgaging deals
Nationwide Visit remortgaging deals
Barclays Visit remortgaging deals
Santander Visit remortgaging deals

Can you re-mortgage using the same lender?

It’s possible to remortgage using the same lender, but it may not always be the best option.

The lender may not offer a deal that works for your current situation, as their mortgage products are subject to change. However, in some cases, the same lender could offer different mortgage products that may be suitable for your remortgage.

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It ultimately depends on your individual circumstances and the lender’s willingness to provide a new mortgage deal. Some lenders may even refuse to give you a new mortgage, in which case you would need to look elsewhere.

Why do people re-mortgage?

People typically remortgage for one of two main reasons: to save on the interest paid or to reduce a property’s loan-to-value ratio and pull money out of the deal.

To save on interest paid

One of the primary reasons for re-mortgaging is to take advantage of lower interest rates, which can result in significant savings over the life of the mortgage.

a property bought while saving on interest

For example, if mortgage rates in the UK have decreased since you obtained your current mortgage, it may be beneficial to remortgage to a lower rate. This can improve your property’s cash flow and reduce the overall interest you pay on your mortgage.

Remortgaging can be particularly advantageous if there has been a substantial drop in interest rates since you initially took out your mortgage.

For instance, if you obtained your mortgage when the base rate was 5% and it has since decreased to 2%, re-mortgaging could potentially save you thousands of pounds in interest payments over the remaining term of your mortgage.

To reduce your loan to value

Remortgaging can also be a way to reduce your property’s loan-to-value (LTV) ratio, which is the amount you owe on your mortgage compared to the current value of your property.

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As your property’s value increases over time, remortgaging can allow you to pull equity out of the deal, effectively lowering your LTV ratio. This can be advantageous if you need access to funds for other purposes, such as home improvements, debt consolidation, or investing in another property.

To benefit from the terms of a different mortgage

Preferences and circumstances can change over the years, and the mortgage terms that initially suited you may no longer align with your current needs.

When you first purchased the property, you may have preferred the mortgage’s early repayment fees, interest rates, or even the lender’s customer service.

However, at any point, if the property’s value has increased, you may find it beneficial to refinance and switch to a different mortgage deal that better suits your current situation.

An example of re-mortgaging

Consider the following example:

Original Mortgage Deal New Mortgage Deal
Mortgage Amount £200,000
Interest Rate 4.5%
Monthly Payment £1,110
Mortgage Amount £180,000
Interest Rate 3.2%
Monthly Payment £860

In this example, by remortgaging, you could save £250 per month on your mortgage payments (£1,110 – £860 = £250). Additionally, you could pull out £20,000 in equity (£200,000 – £180,000 = £20,000) from the deal, which could be used as a deposit for another property or for other purposes.

What are the steps for re-mortgaging?

The steps for remortgaging are similar to buying a house initially, but generally more straightforward since you’re not purchasing a new property, just a new mortgage.

Step 1: Consider the cost of leaving your current mortgage

Before proceeding with remortgaging, it’s crucial to determine if it’s financially beneficial to leave your current mortgage deal.

 house without a mortgage being remortgaged

An easy way to assess this is to consider whether you’ll be saving on interest or if you’re able to take advantage of more favourable terms. If the potential savings or benefits outweigh the costs of switching, remortgaging may be worth considering.

Step 2: Get clear on what you want from a new mortgage

When remortgaging, start your search for a new mortgage by specifying the loan amount you want or the interest rate you’re after.

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Your requirements will depend on the economic climate, as interest rates are likely to be similar across lenders at different times. Clearly defining your goals will help you narrow down your options and find the most suitable mortgage deal.

Step 3: Fix your credit score

If your credit score has decreased since you took out your original mortgage, you may not be able to obtain a new mortgage if the lender deems your credit score unsuitable.

It’s advisable to perform a soft credit check to determine if you qualify for the mortgage you want with a particular lender. If you cannot get approval for the desired mortgage, you’ll need to work on improving your credit score before proceeding.

Step 4: Gather the right documents

Applying for a remortgage requires gathering a set of important documents. You’ll need to provide identification, such as a passport or driver’s license, to verify your identity.

Additionally, you’ll need to supply proof of income, which could include recent payslips or a P60 form. Proof of your current address, such as utility bills or a council tax bill, will also be required.

Property licences in the UK

Don’t forget to include your existing mortgage statement or agreement, as this will be essential for the lender to understand your current mortgage terms. Depending on the lender, you may be asked to provide additional documentation, so be prepared to supply any other requested items.

Step 5: Apply for Remortgage and wait for approval

Once you have all the necessary documents in order, it’s time to submit your remortgage application to your chosen lender. Ensure that all the information provided is accurate and complete to avoid any delays or potential rejection of your application.

a mortgage approval

After submitting your application, the lender will review it thoroughly. Be prepared to provide additional information or clarification if requested, as this can help expedite the approval process.

Patience is key during this stage, as the lender will take the time needed to carefully evaluate your application and financial situation before making a decision.

Step 6: Complete the re-mortgaging process

If your remortgage application is approved, the next step is to review the new mortgage agreement carefully.

Thoroughly understand the terms and conditions, including interest rates, fees, and any other crucial details. Once you’re satisfied with the agreement, sign the necessary paperwork to formalise the arrangement. At this point, the process of transferring your mortgage to the new lender begins.

Ensure that any outstanding debts or fees associated with your previous mortgage are paid off, and work with the lender to discharge your old mortgage agreement. With the remortgaging process complete, you can enjoy the benefits of your new, potentially more favourable mortgage terms.

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