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Rita talks all about remortgaging

What is a remortgage? How does it differ from a regular mortgage?

When you’re coming to the end of a fixed term deal and you’re looking to renew your rate, you can switch over to another deal. If you discuss it with your mortgage advisor, we would help you either stay with your lender on a different deal or look at other lenders.

A remortgage can also help you release some capital via the equity that you’ve got in your house. You might want to consolidate some debt to reduce your household spending, or pay for home improvements like an extension. There could be lots of different reasons.

We would ask whether you’re looking to keep your mortgage balance as it is or raise some more. The difference between a regular mortgage is when you’re buying a property, you’ve got a deposit and you’re looking to raise a mortgage to purchase a property. A remortgage is where you’re not moving but want to change your mortgage deal.

How does the process of remortgaging work in the UK?

First we assess your financial situation – how much are you earning and what’s your disposable income? What’s your credit situation, and how many dependents have you got? Do you have car loans?

Then we can assess what you want to do. You might want to extend the house – add another bedroom and a downstairs office, perhaps. We’ll discuss how much it would cost to achieve those goals and aspirations.

We can guide you on which lenders to look at and ultimately what it means for your budget. We look at what you would be comfortable paying for your new mortgage payments.

How long does it take to remortgage?

Once you have had approval from your mortgage lender, you have six months to transfer from your old lender to the new one. So if you’re coming to the end of a fixed rate you can start the process six months before, giving you time to put the plans in place and gain application approval. There are solicitors involved in the background to get your mortgage transferred from one lender to another.

What are the main reasons why people choose to remortgage?

It comes down to budget. Historically, we are used to having low interest rates, but we’re now coming out of those interest rates.

Rates have gone up which can massively impact our mortgage payments. With the cost of living, too, we need to think more about our outgoings, especially if your income hasn’t necessarily changed a huge amount.

Budget is the main driver of remortgaging – you want to get the best deal possible for your circumstances. We can talk to you about your options like extending your term, for example. It depends how old you are and how long you want to keep working for.

Typically people want to remortgage for home improvements or consolidating some debts. We’ve also had clients release equity to help their children to buy a house or gift them money.

What happens to my existing mortgage when I remortgage?

You would end up completing with your existing lender altogether as you move over to the next provider. The solicitor does all that work for you. They settle the loan amount you owe with your last provider and start again with the new one.

What happens if I don’t remortgage after my deal expires?

It’s not the end of the world. You’d stay with the lender. But what may impact you is that if you haven’t chosen any new options to renew your rate, you would hit the variable rate – and that can be quite a big hike compared to what you’re used to paying on a fixed rate.

Your mortgage payments can almost double or even triple depending on your existing deal – you will feel the pinch if your mortgage payments suddenly increase overnight.

What factors should I consider when deciding whether to remortgage?

Assess your household budget. That could be very different to when you first bought your house. Look at your overall income, your outgoings and what’s comfortable as a mortgage budget – that will be the ultimate driver as to how we readjust your mortgage.

Don’t forget that on a remortgage there’s flexibility to change the rate, the term and the amount. So what you’re comfortable with is how we will work out the advice.

Can I remortgage if I have bad credit?

Absolutely. With a bad credit situation it’s very circumstantial. I would look for your most recent up-to-date credit report and see what’s actually happened.

If something quite specific has happened in your life that’s caused you to have defaults or CCJs or missed payments, that can make a difference. The longer ago it happened, the better.

It all depends what the next lender’s criteria are. Sometimes they will even ignore a small default or small missed payment on a utility bill, for example. We will assess it in detail with you.

Can I remortgage to consolidate debts?

If you’ve had a numerous amount of debts that have caused your credit file to look unhealthy, we can see if it makes sense for you to consolidate your debts. A mortgage has a lower rate compared to the debts that you’re paying back and it could free up some more disposable income for you.

But with consolidating debts, you are spreading the debt over a much longer term. A personal loan from a bank could often be five years. You’d be spreading that over 25 or 30 years – so you will pay more interest in the long run.

Will I have to pay any fees or penalties when remortgaging?

If you are in a fixed deal at the moment it’s best not to remortgage until that deal expires. Let’s say for example, that your rate finishes on 30th June. You would cross over to the new mortgage deal on the 1st July. Anything prior to that day would mean you have penalties to pay, called early repayment charges.

You can start the remortgage process six months ahead. It would all happen in the background, but ideally you won’t complete until the 1st July.

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What are the current interest rates for remortgaging?

I’m not going to go into any specific interest rates. What I would say is the more equity you have in your property, the lower the interest rate will be and the more mortgage options you will have.

Alongside that, we can discuss whether there are any fees linked to those interest rates. It all comes back down to your monthly budget and what it will cost you if you don’t pay any fees but have a slightly higher rate.

You can have fixed rates, tracker rates, discounted rates – it really depends what you’re looking for.

How much could I potentially save by remortgaging?

It does vary a lot. Now in 2024 the situation looks very different to how it was in 2021 and 2022. How much you could save depends on interest rates and the economy.

If the market has stayed fairly steady, when you come to the next round of renewals you may potentially save. It will also depend on whether you’re borrowing extra money – if you are, you’re not really going to save because you’re increasing your mortgage.

But if you’re swapping your existing balance over to the new lender, there may be savings to be had. Again, it depends on the economic climate at the time.

What documentation will I need to provide when remortgaging?

We look at your financial situation, so we need that to be backed up with evidence. When you say to me that you’re earning a certain amount, I need to see your payslips and your bank statements. We will ask for credit reports as well, because you may not realise that there is a slight blip on your credit file.

We also look at any loans or any credit cards that you may have told us about on your credit file, just to cross-reference. Sometimes ID is required but the main things are your bank statements, pay slips and credit file.

Can I switch lenders when remortgaging?

Absolutely. A remortgage is effectively taking your deal from one lender to another. It’s not to get confused with staying with your current lender and simply switching to a new rate. That’s called a product transfer.

With a product transfer you’re not being reassessed in any way. The banks do some background checks just to make sure you’re still credible – but there’s no full affordability assessment like when you apply to a new lender.

It’s just terminology to get used to. Absolutely you could switch lenders.

Will I need a new valuation or survey when remortgaging?

Most lenders now do something called a desktop valuation. They offset the costs themselves and use software to check the address and what it’s potentially worth against the remortgage amount.

If you’ve got more equity in the property there’s less risk, so they tend to be quite happy with that. If they’re not quite sure about the property they will arrange for a surveyor to go and see the house. Most of the deals generally have free valuations. If not, we’ll tell you what those costs are upfront.

Can I remortgage if I’m self-employed or a contractor?

It’s the same process. You can look at new deals, whether you want to release additional monies or simply look at a new rate. Again, it just comes down to your income. For a contractor we will look at your history of contracting and your daily rate. Sometimes we need accounts to go with that.

If you’re self-employed we will need to understand the structure of your self-employment and we’ll need tax returns or business accounts. We want to see whether the income you’re bringing in is affordable to meet the new mortgage payments for your borrowing.

What happens if my property value has decreased since I initially obtained my mortgage?

This all comes back to the valuation report. Ultimately the valuer will decide on the lender’s behalf if they feel a property has decreased in value. You’ll probably have a bit of an idea yourself, based on the area you live in.

If it has decreased, it will affect the rate you can get for your next mortgage. Even if you were just switching your balance to a new lender, if they feel that the value is not as high as you’d hoped, you’ve got less equity. The lower the equity, the higher the interest rate.

How often can I remortgage my property?

Typically you would remortgage when you come into the end of your fixed rate, whether that’s two, three, five or ten years. It’s down to you what you’ve chosen as your mortgage product.

If you’re sat on a variable rate, you’re not tied in, so you can pretty much remortgage whenever you like. Some tracker mortgages don’t have any early repayment charges, so again you can remortgage as many times as you like. It’s only when you’re fixed in that your remortgages are limited.

What are the advantages and disadvantages of fixed rate versus variable rate remortgages?

Fixed is as it says on the tin – you know exactly what you’re paying each month. If you’re budget driven, you know where you stand. That’s the advantage. The disadvantage is that if interest rates drop, you’re locked in. Unless you pay an early repayment charge, you can’t really come out of that fixed deal until it expires.

People tend to use variable rates for a short term only, because they’re looking to restructure the finance of their property or want to move house quite quickly. The advantage is that there are no penalties to come out. The disadvantage with a variable rate is they are much higher than a fixed rate so your mortgage payments will be a lot more.

Can I remortgage if I’m nearing retirement age?

I’m equity release qualified and I tend to look at things holistically. In a nutshell, yes, you can look to remortgage if you’re nearing retirement age – that’s different for everybody and it depends what job you do.

Everybody has different visions of what retirement looks like and when they’re going to do it. It’s important to understand what you’re going to earn in retirement.

I would normally say that if you’re coming to the end of your mortgage term in two or three years, let’s start the succession planning now. You can start to work out if it’s the right time to retire; how much you will earn from your pension income, if you need to carry on working part-time and what your affordability is for later life mortgages.

There are also retirement interest only mortgages and equity release – which I tend to do as the very last resort. There are lots of alternatives. You might get help from family if they’ve got the income to support you. It just depends how long you need that mortgage to last during your retirement age.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage.

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