What is a Remortgage & How Does it Work?

What is a Remortgage?

Remortgaging means transitioning your existing mortgage to a new one without moving homes. This involves replacing your current financial arrangement with a different product, often to secure a better rate or access additional funds.

Unlike borrowing more from your current lender, remortgaging typically aims to avoid higher rates, like the standard variable rate (SVR), after your initial fixed term.

Mortgage Switch Calculator

How Does Remortgaging Work?

Remortgaging involves replacing your current mortgage with a new one, using your home as collateral. This process requires paying off your existing mortgage with the funds borrowed from the new loan and adhering to the new repayment terms.

Although simpler than the initial home purchase, remortgaging remains a significant financial decision that necessitates careful consideration and planning:

1. Get an Agreement in Principle (AIP): Begin by getting an AIP, which indicates if a lender might offer you the amount you need without a full credit check. Most lenders can provide an AIP within minutes. However, note that an AIP does not guarantee remortgage approval.

2. Apply for your new mortgage: With an AIP, apply for your remortgage. You’ll need to provide details of your finances, personal circumstances, and current mortgage. Having all necessary documents ready can streamline the process.

3. Complete Your remortgage: Your new lender will assess your situation, perform a credit check, and possibly value your property. A solicitor will handle the transfer. Some lenders offer free legal help. Once all checks are complete and the transfer is handled, you’ll have secured a better deal and saved money.

Yes, you can remortgage with your current lender, but the key question is whether it's the best option for you. Here are important considerations to help you decide:

• Exit or early repayment fees: Evaluate if the savings from switching outweigh any exit or early repayment fees, as these fees can sometimes negate the benefits of switching.

• Legal fees: Switching lenders may involve legal fees for a solicitor to handle the transfer. Some lenders offer free legal services as an incentive, which can reduce overall costs.

• Lender incentives: Look for lenders offering incentives such as free legal work or valuations. These can help offset switching costs.

• Credit rating changes: A new lender will perform a credit check, whereas your current lender might not. If your credit rating has dropped, it could impact your ability to secure a new mortgage.

• Self-employment status: If you’ve become self-employed since your original mortgage, a new lender will require proof of income, which can be more complex than providing a salary.

• Flexibility needs: If you're seeking more attractive features like the ability to overpay, a new lender might offer better options than your current provider.

• Equity and credit history: High equity and a strong credit history can make you appealing to new lenders, securing you a better rate. Staying with your current lender might limit you to less favourable terms.

Yes, remortgaging involves several fees beyond your new repayments. These costs can sometimes outweigh the savings, so it’s essential to consider them carefully. Here are the main fees and when they are due:

Early Repayment Fee

• Who pays: Your current lender

• When paid: Upon exiting an initial tie-in period

• Details: Typically charged if you remortgage during the initial 2-5 years, calculated as a percentage of your outstanding mortgage. It can be large, but you might cover it by increasing your new mortgage, raising your LTV.

Exit Fee

• Who pays: Your current lender

• When paid: At the end of your mortgage

• Details: Covers the cost of sending your title deeds to your solicitor. Not all lenders charge this, and the amount should be specified in your mortgage paperwork.

Mortgage Arrangement Fee

• Who pays: Your new lender

• When paid: Upfront or added to the mortgage amount

• Details: Charged for taking out a new mortgage. High fees usually accompany lower rates and vice versa. You can pay this fee upfront or add it to your loan.

Booking Fee

• Who pays: Your new lender

• When paid: Upfront upon mortgage application

• Details: Applies to fixed-rate, tracker, and discount mortgages to secure your deal when you apply.

Valuation Fee

• Who pays: Your new lender

• When paid: Upfront upon mortgage application

• Details: Covers the cost of valuing your property. Many lenders now include this service in their packages, so you might not need to pay this fee.

Conveyancing Fee

• Who pays: Your solicitor

• When paid: During mortgage application

• Details: Covers the legal work to transfer your mortgage from your current lender to the new one. Many lenders offer this service for free.

The amount you can borrow when remortgaging depends on your personal circumstances and property factors. Most lenders typically offer up to 95% LTV, though some specialist products and lenders might go higher.

Just like with your initial mortgage, lenders will assess your ability to make repayments. This means you'll need to provide information about your income, as well as any partner’s income if applicable.

Your house's value and how much you've already paid towards your mortgage will also impact the amount you can borrow. One way to increase this amount is by improving your home's value through cost-effective renovations. After these improvements, getting a new valuation can boost your home's worth. However, be realistic about the increased value, as mortgage providers will verify the valuation.

Use our mortgage calculator to see how much you could borrow.

When Can I Remortgage?

You can usually remortgage at any time, but if you've been in your home for less than six months, you may have trouble negotiating a new deal with your current provider or a new lender, depending on their policies.

Many people find the best time to remortgage is when their initial tie-in period is ending, typically within the first 2-5 years. This is when your rate is about to switch to a standard rate, and securing a better deal can save you money in the long run. You might also choose to remortgage to release equity for purposes such as retirement funds or home improvements.

Timing your remortgage is essential as it can positively impact your finances if done correctly. However, remortgaging at the wrong time, such as before a period of financial uncertainty, can lead to difficulties in managing repayments.

What is the Maximum Age to Remortgage?

There’s no universal maximum age limit for remortgaging, as each lender sets their own criteria. Some lenders impose a maximum age at the time of application, typically ranging from 55 to 88 years old. Others set a maximum age at the end of the mortgage term, usually between 70 and 90 years old.

How Long Does it Take to Remortgage?

The time it takes to remortgage varies based on whether you're staying with your current lender or switching to a new one. If you stay with your current lender, the process is simpler and usually takes up to a month, as they already have your information and don’t need to check your credit history.

Switching to a new lender is more involved. The new lender needs to conduct a credit check, assess your application, and complete all the legal work to register your mortgage. This can take up to two months.

Given these timelines, it's wise to start the remortgaging process about three months before you want to complete it. This allows ample time for research and comparison to ensure you find the best deal.

How Many Times Can You Remortgage?

There is no set limit to how many times you can remortgage. If you’re not locked into an agreement with excessive switching fees, it can be beneficial to review your mortgage annually to ensure you’re getting the best deal.

New products are regularly added to the market, so it’s worth staying informed about potential savings. Setting a reminder to review your mortgage annually, starting about three months in advance, can help you stay on top of your options.

How Do You Qualify for a Remortgage?

Qualifying for a remortgage involves several considerations beyond simply finding a better deal. Lenders assess various factors to determine the risks associated with remortgage applicants.

• Income: Your income is a key factor in qualifying for a remortgage. Lenders compare your income to your mortgage debt, typically aiming for a debt-to-income ratio of 38% or lower. However, some lenders may accept higher ratios. Consider reducing debts if your ratio is high.

• Loan-to-value: Most lenders prefer applicants with less than 80% LTV, though exceptions exist. A lower LTV can improve your chances of qualifying for a remortgage. Refer to our earlier section on LTVs for more details.

• Credit score: A good credit score is crucial for qualifying for an attractive remortgage deal. While lenders may offer products to applicants with less-than-perfect scores, these often come with higher interest rates.

How to Get Ready to Remortgage

Now that you understand what remortgaging entails, it's time to prepare for your application. Here are some key steps to consider:

1. Check your credit score: Review your credit report to ensure it's in good shape. Address any issues that may affect your eligibility for a remortgage. You can use our free credit check tool (£14.99 per month after the free 30-day trial) to help spot potential mistakes and fraudulent activity so that you can deal with any problems quickly. The trial and subscription can be cancelled at any time.

2. Explore options with your current lender: Before searching the market, see what your current lender can offer. Use their deals as a benchmark for comparison.

3. Know your property's value: Determine the approximate value of your property to guide your remortgage search. Use online tools or government indices for insights.

4. Assess your mortgage debt: Find out the exact amount you owe on your current mortgage to calculate your LTV ratio accurately.

5. Understand your LTV: Calculate your LTV ratio to gauge the types of rates you qualify for. Lower LTVs typically lead to better rates.

6. Consider early application: If you spot an attractive deal, you may apply early to secure it. Some lenders allow applications up to six months in advance.

7. Explore options wisely: While you can reserve a deal early, continue researching other options. Be cautious about upfront fees and credit checks.

8. Gather necessary documents: Prepare essential paperwork, including bank statements, pay slips, tax forms, and identification, for your application.

9. Prepare if self-employed: If self-employed, organise additional evidence of income, such as business accounts or tax returns, well in advance.

How Much You Could Save by Remortgaging

Remortgaging offers many financial benefits. By securing a better deal, you can reduce interest rates, leading to significant savings, and even access equity through a lump sum.

For landlords, understanding buy-to-let remortgages is essential. Unlike residential remortgages, which cater to property owners residing in their homes, buy-to-let remortgages are tailored for rental properties.