What is remortgaging, and how does remortgaging work?

Mortgages Market Study research shows that 10% of UK homeowners don’t remortgage after the initial fixed period has expired with their existing lender.

This means that instead of paying their usual interest rate, they’ll pay a Standard Variable Rate (SVR) instead. The SVR can be significantly higher, costing homeowners much more in mortgage repayments.

According to the study it was estimated that people who fail to remortgage pay an extra £2,300 each year. And worse still, borrowers don’t know how much it’ll cost each month, making it harder to make a solid financial plan.

With so much at stake, we explain how you can find the best way to remortgage for you and avoid some potential costly traps.

What is a remortgage?

To remortgage simply means to mortgage a property again. Each mortgage will be taken out for a specific length of time, so if you’re intending to renew the finance on your property, eventually it’ll be time to remortgage.

Most homeowners expect to remortgage every few years, when their initial interest rate offer is due to expire, but before the SVR kicks in.

The study showed that two-thirds (66%) of ‘new borrowers’ will remortgage by seeking a new deal either with their existing lender or a new provider.

What are the reasons to remortgage?

Most homeowners will remortgage when their fixed term has come to an end. These usually last either two, three or five years, depending on the term agreed with the mortgage lender.

However, there are other reasons for remortgaging:

• To avoid paying the SVR or to secure a better interest rate SVRs can be expensive… and get more expensive as interest rates rise! For borrowers, this can quickly add hundreds of pounds to their monthly bills, unless they can remortgage ahead of time to lock in a better deal.
• To get equity release Depending on how much the property is worth, sometimes people may remortgage if they need to access some of the money they have invested (known as ‘equity release’). This can also be a way to pay for extensions or refurbishments to add more value to the property.
• To access a better LTV deal The proportion of money borrowed is called the ‘Loan To Value’ or LTV, and generally speaking, a lower LTV means better rates. As the mortgage is repaid over time or the property increases in value, the LTV falls, which allows borrowers to explore better deals.  

What’s the process to remortgage?

The process depends on the borrower’s unique situation, and it’s different for everyone. However, here are some general steps relevant to most people:

1. Decide what kind of remortgage deal you want

You’ll need to prioritise whether you’re looking to lower your monthly repayments, release equity… Or something else.

2. Figure out how much you could borrow

Use online mortgage calculators to understand how much you could borrow and what your monthly repayments would be.

3. Compare deals online, including extra fees

Online comparison sites are a good way to get a quick understanding of what’s available, but be wary of extra fees!

4. Get organised with your finances and documents

In the three to six months before your application, take extra care to ensure your financial information is up-to-date and consistent.

5. Start your application, either directly or via a broker

You may prefer to employ a professional mortgage broker or apply directly yourself, either online or in person.

6. Obtain your remortgage agreement in two stages

You may initially receive an ‘agreement in principle’, which is acceptance based on soft credit checks and information you’ve provided. That info is then verified with hard credit checks, surveyor visits and more.

7. Completing your remortgage

At this stage, the solicitors or conveyancers will need to prepare and submit new documents. Your lender or broker can usually guide you as to when you’ll need to employ lawyers.

8. Cancel your existing direct debits

Once the remortgage is complete and you’ve paid any early repayment charges, be sure to delete your old Direct Debit, if you have one (paying by Direct Debit can help you stay on top of your budget and build a healthy credit score by paying on time).

Our earlier guide contains more detail on these steps.

What’s the easiest way to remortgage?

If you’re looking for a straightforward remortgaging option that’s consistent with what you already have, the easiest option may be to contact your existing mortgage provider to see what rate they can offer.

In most cases, you should be able to pick a new two, three or five-year term mortgage, with some banks now even offering seven or ten-year terms. You may need to pay a little more interest, but it should still be less than the SVR.

Remortgaging with the same provider is known as a ‘product transfer’, and while you’ll still need to provide personal documents, and financial information and undergo credit checks, the process is usually smoother.

However, easier doesn’t necessarily mean better! Even if you plan on continuing your mortgage with the same provider, shop around and compare the best deals. You never know how much you could save.

Everything else you need to know about remortgaging...

How long does it take to remortgage?

The remortgaging process usually takes between six-to-eight weeks.

As a rule of thumb, you should consider starting the journey about six months before your current mortgage agreement expires to avoid paying a costly and uncertain SVR.

Is it better to hire a mortgage broker?

Hiring a mortgage broker can lift a huge weight off your shoulders when it comes to remortgage. They are experts in their field, can compare the best deals for you and take on the stressful application processes. Though, there are downsides too.

Some remortgage deals are only available to homeowners directly. And brokers will usually charge a fee.

If you have a complicated situation or don’t feel comfortable with the process, it may be worthwhile hiring a broker. But, if you have the time and some experience, you could save yourself some extra cash by doing it yourself.

Is remortgaging worth it?

Remortgaging is almost always worth the effort. Research by the FCA found that the people who do not remortgage miss out on savings of £2,300 a year. And for households with higher income, this rises to a whooping £4,400.

Meanwhile, another survey shows how 800,000 people in the UK could add seven weeks’ worth of salary to their savings if they remortgaged today.

While it may feel burdensome, finding the right remortgage deal for you can have a huge payoff. After all, getting to grips with your financial plan and savings can bring you peace of mind too!

This article should not be read as financial advice and individuals should make their own decisions in relation to their financial planning or seek help from an independent financial advisor. You shouldn’t deal in any financial product unless you fully understand it and the inherent risks.