Remortgaging

How does remortgaging work?

When you remortgage you either take out a new loan with your existing lender or with another provider. You’ll completely pay off your old mortgage with the money you receive from the new one.

Why remortgage?

People remortgage for various reasons. Here are some common ones:

1. Your deal’s about to end, and you don’t want to pay the lender’s standard rate. If you are in a fixed-rate mortgage, many people remortgage at the end of every fixed term (usually every 2-5 years).
2. You’ve found a better deal elsewhere (you may want to consult a broker about early redemption charges and exit fees)
3. Your home’s value has increased since you bought it, meaning you have a better loan-to-value ratio (i.e. the home’s value compared to what you borrowed). This could help you get a lower rate
4. You want to borrow more money (e.g. for home improvements)
5. You’re worried about interest rates going up, so you want to change your interest rate type

Benefits of remortgaging your home

Remortgaging is common practice and could help you reduce your monthly payments, finance home improvements or other purchases, or enable you to pay off your mortgage faster by increasing the monthly payments and shortening the term.

Finding a better mortgage rate

There may be a few reasons why remortgaging could get you a better rate:

• Many homeowners start off on a low fixed or discounted variable rate, and when their current deal is coming to an end their lender automatically moves them onto a standard variable rate, which usually means a higher monthly payment. If this is the case for you, you may want to remortgage before you’re put on the standard rate.
• If the value of your home has gone up – giving you a more favourable loan-to-value rate – you could be eligible for lower mortgage rates than before.
• You may just want the stability of a fixed rate, especially if you’re concerned that your variable or tracker rate is about to go up.

Changing your monthly repayment amounts

If your financial circumstances have changed, remortgaging can help you change how much you pay each month. For example, if you get promoted at work and are earning a higher salary, you may want a new mortgage with larger monthly payments over a shorter term, so you can pay off your mortgage faster. Alternatively, if your salary has decreased or your living expenses have risen, you may want to remortgage to a deal with smaller payments over a longer term, to help you make ends meet.

Freeing up money for home improvements

If you have ‘equity’ in your home – that’s when the value of your property is higher than the amount you owe on your mortgage – you may be able to move to a larger mortgage, and use the excess cash to fund something like home improvements, your children’s education, or even a wedding. But consider your other options carefully – for example, you may be better off with a home improvement loan or 0% purchase credit card.

If you’re coming to the end of a fixed term, your lender will probably contact you a few months before it ends to arrange a review. That’s a good time to start comparing mortgages. Applying to remortgage works much like making a regular mortgage application. The whole process should take about a month if you’re staying with your current lender, or around two to three months if you’re changing lenders.

Before remortgaging: what to consider

Here are some of the things you should think about before you decide to remortgage your home:

Your circumstances

Can you afford higher monthly repayments? What if interest rates go up, or if you lose your job? If you’re planning to start or extend a family, your expenses may rise significantly. Get out your calculator and work out what you can afford, both now and in the future.

The financial benefits

Compare your existing mortgage with other offers. It’s not all about the initial rate – work out how much interest you’ll pay over the full term too. You should also take into account any extra costs associated with remortgaging, such as:

• Early redemption charges and exit fees (e.g. if your previous mortgage hasn’t ended yet)
• Mortgage application/arrangement fees
• Legal and valuation costs
• Mortgage broker fees

Make sure you have a complete picture of the financial benefits – or losses – of remortgaging before you commit.

Your credit score

Lenders will calculate your credit score – using information from your credit report, your application form, and any other data they hold (e.g. if you’re already a customer) – to decide whether to lend to you. You can get an idea of how lenders view you by checking your free Experian Credit Score, and there may be several steps you can take to improve your credit rating before applying to remortgage.

Other credit applications

Each time you apply for credit, a hard search appears on your credit report. Too many of them over a short space of time can make lenders worry that you’re desperate, and affect the way they score you. So, try not to apply for credit in the months leading up to your remortgage application.

How do I remortgage my home?

Ready to find a new mortgage? Here are some of the steps to follow or expect:

Find out how much you’d need

Find out how much your home is now worth, check what you still owe on your mortgage, and do the math. The longer you’ve been paying off a mortgage, the better the loan-to-value ratio should be compared to when you first bought it, especially if your home’s increased in value.

For example:

• You bought your home at a value of £200,000 and got a mortgage at £150,000 (LTV - 75%)
• You have now paid off a further £50,000 and have an outstanding balance of £100,000, but the house is now worth £300,000
• You now remortgage for the £100,000 balance, but it would be at 33% loan-to-value rather than 75%, giving you a much better selection of interest rates and mortgage deals

Compare mortgage deals

We can help you compare remortgaging options from across the UK market. Comparing mortgages with Experian is free and it doesn’t affect your credit score.

Lender assesses your application

Once you have found a deal that suits you, the lender will evaluate you based on information from your credit report, your application details, and any other data they hold on you if you’ve been a customer before. As with a first mortgage application, your job is to convince them that you’re a responsible borrower and lending to you won’t be a big risk.

By checking your Experian Credit Score before you apply for a mortgage, you can get an idea of how lenders may see you, based on information in your Experian Credit Report.