How does a remortgage work?
A remortgage could help you save money if you weigh up the fees involved with the savings you could make. Here’s how it works.
A remortgage is the process of moving your home’s existing mortgage to one with a new lender.
People remortgage for many different reasons, including:
- Finding a better deal elsewhere – you might be on a standard variable rate (SVR) and want to move to a fixed-term
- Coming to the end of a fixed-term deal on your current mortgage and wanting to lock in a lower rate with a new
- The loan-to-value on the home is lower (as more of the mortgage has been repaid).
- Wanting to get ahead of a rise in interest rates, which would affect mortgage
How a remortgage could help you save
One of the big reasons people remortgage is to save money on their monthly payments. If you’re on a standard variable rate that is higher than the fixed-rate deals currently available, you could save by switching – either to a fixed-rate mortgage or one that ‘tracks’ the Bank of England’s base rate.
If your home has gone up in value and you’ve paid off enough of your mortgage to give you a lower loan-to-value, it means you own more of your home and have less to pay off.
Remortgaging could result in lower monthly mortgage payments because you’re paying off less of a loan amount (and in turn, less interest on it too).
How long does the remortgage application take?
The process can take between four to eight weeks from the time you apply so it’s good to start planning early. If you’re coming to the end of a fixed-rate or tracker term, your lender should tell you that your mortgage will move onto their standard variable rate. This could be an ideal time to move if you find a better deal elsewhere, or you may even find an attractive deal with the same lender and go through a ‘product transfer’ (see box).
How much does a remortgage cost?
Existing lender fees
Your existing lender could charge you a fee if you’re leaving them early into a fixed period in your mortgage. This is known as an ‘early repayment charge’ and could be in the range of 1% to 5% of your outstanding mortgage balance. They will also charge you an ‘exit’ fee of around £50 to £100 to cover their administration costs.
New lender fees
Your new lender could charge you a range of fees, so before you commit it’s important to check what you will pay. This will help you calculate whether a move is financially beneficial overall.
Their fees could include:
- Application fee to set up your new Could also be called an ‘arrangement’, ‘product’ or ‘booking’ fee. This could be around £1,000.
- Valuation and conveyancing Some providers won’t charge for these, but it’s worth checking if you are moving to a new lender.
- Solicitor’s fee covering the legal paperwork to do with managing the transfer of your mortgage.
Is a remortgage right for you?
Whether or not you remortgage all depends on your situation and the type of mortgage plan you’re currently on. You may want a mortgage that lets you make overpayments, or you could be coming to the end of your current deal’s fixed term and think the lender’s SVR will be too high. One of the most important things you can do before you decide is gather your current mortgage paperwork, look at the fees and get some expertadvice on your next steps.
