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Use our UK Finance guide and learn by experience. We outline pitfalls so that you don't have to learn the hard way, as many of us often do.

Mortgage

Remortgage

A remortgage is simply the replacement of an existing mortgage with a new one.

The new mortgage will pay off the existing lender and sometimes the borrower may raise additional funds over and above the old mortgage amount. With a competitive mortgage market, remortgaging has greatly increased in popularity and many borrowers usually remortgage to secure a competitive interest rate. It should be noted that remortgages carry costs and the borrower should also be wary of any redemption charges when considering a remortgage.

Reasons for remortgaging vary. The main ones are to: Save money: Remortgaging can significantly reduce your monthly outgoings.

Reduce the length of the Loan: With extra money each month and more flexible products it's possible to overpay your mortgage loan and pay it off early without redemption penalties.

Release equity: By remortgaging for a sum that is greater than the amount needed to repay your mortgage, you can release money to buy a new car, make DIY improvements or invest in a second home.

Change product: If you get stuck with a standard rate or with a poorly performing mortgage you can change product with all the options available to a first-time buyer.

Switch from an unsatisfactory lender: There's no need to stay with an unsatisfactory lender as switching from one to another has never been easier.

Increase flexibility: Remortgaging from a standard mortgage to a flexible one, current account mortgage (CAM) or offset product will allow you to under and overpay your mortgage and release equity without having to get permission from your lender.

Costs and penalties or remortgaging

The lender will not rely on your original survey when assessing the remortgage value of your house, so there will be a charge as there would be for a normal mortgage. There will also be legal costs and possibly administration fees although these aren't likely to be as high as with a totally new mortgage.

Many lenders offer UK remortgage packages that refund these costs on the completion of the deal, providing you use their recommended surveyors and solicitors. However, you'll may face substantial costs if there are early repayment charges (ERCs) associated with your existing mortgage. If you are within an introductory offer period with a fixed, discounted or capped rate of interest, you will incur a penalty, which will usually be a set proportion of the loan. Some loans also have an overhang period after the introductory time.

However, it's always worth weighing up the savings you can make with a remortgage against the costs and penalties. It may be worth paying these for the benefit of the new loan, particularly if the redemption fee is small.

Timing is everything

Although the process of remortgaging is similar to getting a normal mortgage, it's faster as you're not buying a home. Depending on the lender, it should take around six weeks. If you need to remortgage fast, some lenders offer fast¬track services that can complete in as little as a week but this does depend on your individual circumstances. It's also important to consider 'when you want to complete the deal. If you are remortgaging from a lender that charges interest to the end of the month, you should remortgage on the first of the month so the old and new mortgages don't overlap.

Which mortgage should I look at?

Choosing a product when remortgaging is just as important as the first time around. You need to consider your financial requirements and your circumstances. The product you choose will depend on factors such as the size of your outstanding loan, attitude to risk, income and what you think will happen to interest rates.

What you need to know

  • Remortgaging is taking out a mortgage without buying a house
  • Reasons for doing so include saving money, reducing the length of your loan, releasing equity and switching from an unsatisfactory product
  • You may have to pay ERCs to switch from your existing mortgage
  • You have to pay valuation and legal fees, although they are not as high as when you're buying a property
    • The process should take about six weeks

 

Browse our UK mortgage guide

For most of us, buying a property will be one of the biggest decisions and purchases in our lives. Choosing the right mortgage deserves serious attention and planning.

With the collaboration of financial advisors we have put together a comprehensive guide to mortgaging in the UK. This guide will help you to find the right mortgage for you and put you on the right path to understanding what type of mortgage you will need.

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