If you’ve been tied into a fixed rate mortgage that has come to the end of its term, you’ll automatically switch to your lender’s Standard Variable Rate (SVR) and could see your monthly mortgage payments increase from the payments you were previously making.
Remortgaging allows you to take back control of your monthly mortgage payments, renegotiate your mortgage term, or use the equity in your home to secure funds for making home improvements.
In this guide to remortgaging your home, we’ll take you through the remortgaging process, answer the most common questions about switching your mortgage, and explain the key things to consider when moving to a new mortgage product.
What is remortgaging?
To remortgage means to take out a new mortgage on your home, using its current value as equity. It’s normally something homeowners look to do at the end of a fixed rate mortgage period, when the rate of interest you pay on the loan moves to whatever your lender’s Standard Variable Rate is.
When this occurs, instead of paying interest capped at a certain amount, the interest rate on your loan can go up or down. This can result in changes to the overall value of the loan you pay back, as well as increasing your monthly mortgage repayments.
By remortgaging to another fixed rate product you can secure an interest rate that stays fixed for a set period of time (usually two, three or five years) ensuring your mortgage payments stay consistent (the same monthly amount) for the duration of that mortgage term.
What are the benefits of remortgaging?
One of the biggest benefits of remortgaging is the chance to save money by lowering the interest rate you pay on your mortgage loan. But remortgaging can also allow you to alter the length of your mortgage too, giving you the flexibility to increase or decrease your monthly repayments.
As you no doubt discovered when you took out your mortgage, interest rates on mortgage products vary by lender and by loan to value ratio (the amount you need to borrow as a percentage of the property value). Typically, lenders apply more interest when the loan to value is higher, making the pool of products at this end of the market less competitive. As the loan to value decreases, you can access a wider choice of mortgage products at lower rates of interest.
Remember – you’ll never see a penny of the interest you repay on your mortgage back, so ideally you want to keep your interest payments as low as possible. Remortgaging allows you to ‘shop around’ for a better rate than you’re currently on, helping to reduce the length of your mortgage term and decrease the amount you’ll repay on your mortgage overall.
Can I reduce my monthly repayments by remortgaging?
Yes, remortgaging can also benefit you if you’ve been struggling to afford your mortgage repayments each month. Subject to the lender’s criteria, you may be able to lower your monthly repayments by increasing your mortgage term when you remortgage (although this will likely increase the overall value of the loan you need to pay back).
Either way, remortgaging gives you options and allows you to take back control of your mortgage repayments. What’s more, your home’s current market value is taken into consideration when you remortgage – so if your home’s value has gone up, you can leverage this equity to your advantage to secure a better interest rate when remortgaging.
I bought my home through Help to Buy – can I remortgage?
Where you have purchased a property using the Government Help to Buy scheme with either a 20 or 40% equity loan, remortgage is often used to pay back the equity loan to the Government.
This allows the homeowner to own the full 100% of the property and is typically done prior to the equity loan interest payments kicking in at year 6.
To achieve this you need sufficient equity in your property to take your borrowing to a level that covers both the outstanding mortgage and the equity loan repayment amount. Therefore, income needs to support the new amount of borrowing and the total borrowing needs to be within the available Loan to Values that lenders offer.
Is there anything I need to know before remortgaging?
Once you’ve come to the end of a fixed term mortgage you should be free to switch to another lender at your discretion, however it’s worth checking that your existing lender doesn’t charge a fee for exiting your mortgage with them first. Usually, an early exit fee only applies if you’re still within the term period of your fixed rate mortgage product.
You should also be mindful that some lenders charge a mortgage arrangement fee on their mortgage products, while others will offer their products fee-free. In the case of an arrangement fee, you can usually either pay this as a one-off fixed cost or add it to your mortgage term (although the latter will incur interest).
Your lender may also wish to see proof of earnings to ensure you can afford the mortgage repayments and evidence of your monthly outgoings, much like when you took out the original mortgage on your home. Similarly, your credit rating may also be reviewed, so it’s advisable not to take out a new credit card or credit agreement prior to remortgaging, as well as making sure all your finances are in order.
How do I remortgage?
Remortgaging is your opportunity to redefine the terms and value of your mortgage repayments, so you’ll want to be assured that you’re switching to a deal that is right for your circumstances and offers you the financial flexibility you need.
At Threshold, our qualified brokers are ready and waiting to help you find the mortgage deal that best suits your unique circumstances. Whether you’re looking to release equity in your home for repairs or improvements, switch to a lower rate of interest or decrease the term of your mortgage repayments, we can help you to remortgage with a lender that’s right for you.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.