If you have a mortgage, there will come a time when you might consider remortgaging. In a nutshell, remortgaging is the process of taking out a new mortgage with a new provider on a property that you already own.
Remortgaging is important as it’s a way of ensuring that you have the best mortgage product available to you. Just as you would shop around once your car insurance policy is coming to an end, remortgaging works in a similar way.
Why should I remortgage?
There are many reasons why you might want to remortgage. Remortgaging can help you to reduce your monthly payments, find a better deal or pay your mortgage off sooner. Usually, people choose to remortgage because their current deal is about to end. If you are due to be put on your lender’s SVR, then you may wish to remortgage to avoid higher/variable rates.
Remortgaging can also allow you to borrow more money against your home in order to release capital. Perhaps you want to carry out some home improvements or buy a new car. When your deal is coming up to expiry, a mortgage broker can research raising additional money against the security of your house. This is handy if you are in need of some extra cash.
If you want to change the length of your mortgage, you can do this by remortgaging. You can remortgage to extend your mortgage over a longer period of time to bring your monthly payments down. This could be over 25/28/30/33/35 & up to 40 years (age permitting).
On the flip side, you may find yourself with some extra money at the end of each month and you wish to reduce your term down from 25 to 22 years, resulting in you paying your mortgage off early.
Lastly, if the value of your home has increased, you might be able to remortgage and be placed in a lower Loan to Value (LTV) band. This makes you eligible for lower rates. Remortgaging does come at a cost though, so make sure the amount you’d be saving is enough to warrant the decision to remortgage.
How much does remortgaging cost?
There are numerous fees involved in remortgaging. You need to be aware of these fees in order to work out whether remortgaging is worth it for you.
Arguably the most important fee to be aware of is the early repayment charge. Whether or not you need to pay this will depend on when you are remortgaging. If you are coming out of your current mortgage deal early during a tie-in period, you will be faced with this charge. It is usually a percentage of the outstanding mortgage debt.
This is the lender’s way of recouping some of the interest they will be losing as a result of you breaking your deal early. For example, on a five-year tracker deal, the early repayment charge could be 5% in year one, 4% in year two, 3% in year three and so on. With this in mind, the early repayment charge can be a significant fee. You would need to find a new deal with a much lower monthly payment than your current one in order for it to make financial sense.
To avoid this fee, make sure your remortgage completes after your current tie-in ends. This is usually when your mortgage incentive period ends.
Other fees to be aware of are:
- Deeds release fee – around £50-300
- Arrangement (product) fee – around £1000
- Booking fee – around £100-200
- Valuation fee – around £300-400
- Conveyancing fee – around £300
- Mortgage broker fee – around £300
Remortgaging vs product transfer
Remortgaging is not to be confused with a product transfer, or a product switch as it is often known as. A product transfer is essentially when you switch to a different mortgage product with your current lender. Unlike remortgaging with a different lender, a product transfer is not normally considered to be new lending, unless you are borrowing an additional amount.
A product transfer is generally a quicker (4-6 weeks) and simpler process. This is because your current lender ought to have your details to hand from your original application. You also don’t need to supply wage slips or any documentation. It is just a simple swap of mortgage products. You generally have less fees to pay as well, as you are able to avoid legal costs and valuation fees.
The downside is that you might not get the best deal available by limiting yourself to solely your current lender. Plus, your current lender may do all they can to encourage you to stick with them so as to not lose your business. This can leave you confused. It’s a good idea to shop around for peace of mind that you are making the best decision.
By remortgaging with a new lender, you will have access to more deals. You may even receive incentives such as cashback, a free valuation or free legal fees in order to attract you as a new customer. You will be hit with more fees, however, and you will have to submit a new application and start the remortgaging process from scratch. The best decision for you will depend on your individual circumstances.
If you need support during the remortgage process, we at Bromfield Legal are here to advise. Once you have an offer, one of our expert solicitors can provide the remortgage conveyancing on your behalf.
Simply get in touch with us today and arrange to speak to someone at your nearest Bromfield Legal office.