How to Remortgage, and when not to Remortgage

Amanda Gillam
18th April, 2019
Home-ownership

A remortgage means applying for a new mortgage on an existing property. Most people do this in order to repay an older mortgage and get a better deal but it can also be used to borrow additional money against rising property prices. A remortgage can be a delicate process that depends on a range of different factors, including your own personal financial circumstances. It’s always worth thinking carefully about whether this is the right time to make an application like this. when and how to remortgage

The benefits of remortgaging

Find a better deal. If you find a substantially better mortgage deal then switching could save you thousands. Bear in mind that you’ll normally have to cover the cost of an early repayment fee and an exit/admin charge if your deal isn’t coming to an end.
Avoid an interest rate hike. Depending on the type of mortgage you have, you might be able to protect against an imminent interest rate rise by switching. Fixed mortgages are usually the best way to achieve this.
Find a new deal. When you’re about to come to the end of an existing mortgage deal you’re in the perfect position to remortgage. Most good deals on mortgages last between two and five years so remortgaging once this initial period has expired will enable you to avoid the less attractive deal and higher interest rates that normally kick in after the initial period.
Pay less because your property is worth more. If your home has significantly increased in value since you first took out your mortgage then you may now be in a lower loan-to-value band, which means lower interest rates.
Borrow more. If your current lender has refused any further borrowing you might be able to find a new lender who will agree. The most common reason to borrow more is for home improvements – lenders are least likely to agree to funds that are going to be used to fund a new business.

How to remortgage

Check the market to see what deals are available. Most people remortgage to save money so, before you start the process, research the deals that are currently available and whether they are likely to help you save. Make sure you’re looking at the cheapest possible deals available to you in your individual circumstances. Price comparison websites are an easy way to do this – use one that includes direct only deals, as well as the deals available to mortgage brokers.
Make sure you know what the fees are. Remortgaging fees can cost thousands and you’ll need to factor these in to ensure you can see the true cost of remortgaging.
Can you afford the new mortgage? It might be worth having some frugal months beforehand so that you can easily pass the affordability checks.
Remember your credit score. Don’t miss any repayments, remember that all applications go on your file and try to correct past credit issues. Ideally, start working on your credit score a year before you remortgage and don’t make any applications for credit in the months before you’re hoping to get a new mortgage deal.
Use a mortgage broker. They tend to have a good understanding of affordability and can match you up with the deal you’re most likely to be accepted for. Just remember they don’t have to tell you about every mortgage on the market and there may be fees to pay.

When remortgaging is a bad idea

Your circumstances are different. For example, you’ve changed jobs or taken a pay cut and now would struggle to meet the basic criteria for a mortgage.
There are credit score issues. If, for whatever reason, your credit score is now in bad shape you’ll struggle to get a good deal if you remortgage now.
There’s not much left to pay off. For example, if you owe less than £50,000 there may be few deals available that will actually save you money.
The figures just don’t add up. Whether as a result of the economy or interest rates, if there aren’t any deals out there that are really beneficial it’s better to stay put.
You’ll be charged high fees. Early repayment fees can be thousands of pounds and there may also be other fees to pay too. Make sure these aren’t so high that they wipe out any savings you’d make by remortgaging.
You don’t have much equity. Most people would struggle to get a better deal on a mortgage if they need to borrow more than 90% of the property’s value.
Your home is worth less. If your home has dropped in value so your equity is worth less – or you’re in negative equity, where you owe more than the property is worth – it may not be a good time to remortgage.
Your current deal is pretty good. It may be that by shopping around you realise that your existing mortgage is actually one of the most attractive out there and there is no real need to remortgage right now.
And sometimes you may find that a secured loan is a better option