Remortgaging Your Home

What is Remortgaging?

In a nutshell, all you are doing with this is changing from one lender to another to get a better rate or cheaper deal. The two do not necessarily go hand in hand. Let me explain. If you have a small mortgage, you will probably find it is not worthwhile paying an arrangement fee to the lender to go on a low rate. You may find it cheaper by going on a slightly higher rate and paying no arrangement fee. Always best to speak with someone before deciding on which deal to go for as you don’t want to be caught out by getting a more expensive deal overall even though the rate is much lower.

One benefit of remortgaging is that you will not pay for any valuation or solicitors fees, although not everyone does qualify for this. The reason being, it depends solely on your circumstances at the time of remortgaging, so please check or ask your adviser.

How does remortgaging work?

When considering how to remortgage your house, it’s important to think about your wider financial position. It’s also important to consider what happens when you remortgage, so here are the steps you’ll need to take.

1. Complete an Agreement in Principle

Many creditors now allow you to get an online Agreement in Principle (AIP). It’s a way to find out if a lender can lend the amount you need. You don’t have to pick a particular remortgage contract, and it’s not a guarantee that a remortgage would be accepted, but it will help you understand your choices.

The only drawback with doing this several times is some lenders leave a credit footprint on your report and your credit core will reduce each time you do this. So, instead of going directly to a bank or building society who will only offer their own rates, speak with an independent broker who can search the whole market for you.

2. Consider all the costs

Check whether the lender you plan to transfer your mortgage to charges any of the following to make sure remortgaging leaves you better off:

Application fee – a charge to set up your new mortgage. Also known as an arrangement, product or booking fee

Valuation fee – to confirm the value of your property. When you remortgage most lenders do not charge a valuation fee.

Solicitor’s fee – a solicitor will need to manage the transfer of your mortgage. Normally the lender instructs one for you if they provide this for free.

If you intend to remortgage again in the future, ask any prospective lenders if you need to pay an exit fee or an early repayment fee.

3. Apply for your new mortgage

You can apply for a remortgage if you have an AIP. As well as specifics of your current mortgage, you will need to include information about your personal and financial circumstances. Make sure you have documentation for any loans or other credit obligations to show what you receive and the paperwork.

4. Completing your remortgage

A remortgage’s final steps are pretty much the same as buying a new property. To confirm your current circumstances, your new lender will carry out a credit check and arrange for your property to be valued. To manage the transfer of your mortgage, you will need a solicitor or conveyancer.

This new offer can either be with your present lender, which is called a ‘product transfer’ or “rate switch”. If you remortgage then normally you change lender. A product transfer normally means you stay with the same lender and because they have lent you the money already you do not have to provide proof of income and solicitors and surveyors do not need to be involved. As long as you have kept up your repayments normally lenders offer you a new rate to stay with them.

You don’t even have to remortgage at all, however always best to check what your current lender is offering as well as check the whole market. Our advisers can do this for you.

Why/when should I remortgage?

Your current deal is about to end.

Many of the best mortgages only last a short time – often two to five years – the typical length of time offered on a fixed-rate, tracker, or discount mortgage.

Your lender will put you on its standard variable rate (SVR) after your initial deal finishes. It’s likely to be higher than your introductory interest rate. If so, you want to be able to remortgage or do a rate switch. Start looking at your rate for about 14 weeks before it ends.

You want a better rate.

If you are tied to an initial contract, you will normally need to pay an early repayment fee that can be very high, sometimes 2-5% of the amount of mortgage you owe. Plus, when you repay every mortgage, there is usually a small exit fee (you might call it an ‘admin fee’ or a ‘deeds release fee’).

This does not mean that you do not do it because the savings can be significant (especially if you have a large amount of mortgage debt). If you have done your sums before taking the plunge, it will help.

Your home’s value has gone up considerably.

You may find that you are in a lower loan-to-value band and thus qualify for much lower rates if the value of the property has risen steadily since you took out your mortgage. Again, if you had your sums done, it would improve, but it’s certainly worth a look.

You’re worried about interest rates going up.

You want to overpay & your lender won’t let you.

Maybe you had a salary increase, or maybe you inherited some money. You want to pay extra now, but your current contract is not going to let you.

A remortgage would allow you to lower the size of the loan and as a result, theoretically get a cheaper rate. But look out for any early repayment or exit fees you face and equate this to how much the new cheaper mortgage will save you.

You want to switch from interest-only to repayment mortgage.

In fact, you shouldn’t need to remortgage to do this. It should please your lender to make a move for you. You will have to re-qualify and prove your income again to the lender to do this. If they do not offer this and the lender allows you to overpay then you may be able to overpay to reduce the balance of the mortgage. An overpayment is classed as a capital payment not an Interest payment so worth doing every month if you can. Its financially better for you to make overpayments monthly rather than annually because most lenders these days charge interest on a daily basis, therefore, you will save more money by overpaying monthly.

However, if you want to move from capital repayment to interest-only, it’s a whole different story. If you decide to do this. There are certain criteria you may have to meet if the lender does allow Interest Only mortgages.

You want to borrow more money.

Your current lender may have said no to lending you extra cash, or the terms it provides aren’t very good. Remortgaging to a new lender might allow you, at low rates, to raise money inexpensively. There are several ways of raising capital from loans or mortgages on property. Best to speak with a broker who can give you the cheapest way of doing this.

You will be asked by the new lender what the extra money is for. Surprisingly, the money you borrow for a new vehicle is likely to be more convenient than for business purposes. Not so unexpectedly, to start a new company, they won’t want to lend you money.

The most commonly accepted reasons to raise money are for home improvements and paying off debts (debt consolidation).

What are the costs involved in remortgaging?

The costs of a remortgage can vary immensely. If you are remortgaging your own residential property through a high street bank, they normally offer you a free valuation and free legal costs, providing you use the lender’s own solicitors. Some offer you cashback instead of free legal services, and some even offer a free valuation, free legal services, and cashback.

Lenders may offer a few different rates.

1. A low rate with a higher arrangement fee
2. A slightly higher rate with a lower arrangement fee
3. A higher rate with no arrangement fee at all

So, it’s best to work out the overall cost of the mortgage when choosing your rate and fees associated with it because if you have a small mortgage, i.e. under £100,000, then it may be worthwhile you paying a higher interest rate and pay no fee whatsoever. Your adviser will be able to tell you this and make a recommendation based on how much mortgage you have and over how long.

The main thing to think is that the arrangement fees can normally be added to the mortgage if the lender allows this and the valuation and legal costs so, in essence, you don’t really have any upfront costs.

Just remember that if you add your arrangement fee to your mortgage, you will pay interest on it so think carefully before you add it.

If you are remortgaging a buy to let property or if you have had bad credit in the past, then you could potentially pay a higher arrangement fee than normal or valuation, and legal fees. These fees will be explained to you before you decide to proceed with your mortgage so no surprises.

The fees to set up Buy to Let mortgages can be high so please ask your adviser what the fees will be. There are several Buy to Let lenders who will offer a free valuation and free legal fees but again it depends on the lender and product they offer.

Suppose you have had bad credit in the past. In that case, it may be advisable to stay with your existing bank if you are with a high street bank because many sub-prime or bad credit mortgage companies will charge a higher rate of interest. You will have to pay valuation and solicitors fees to switch, so it’s worthwhile speaking to your adviser to see if it is worthwhile switching your current mortgage deal with your current lender.

Early repayment charge: If you’re transferring mortgages before your current tie-in term comes to an end, you’re usually only likely to pay an early repayment fee.

For instance, you may have taken out a mortgage that including the tie-in duration, is set for five years. The fee is always a percentage of the unpaid mortgage, and the faster you want to leave, it’s typically higher. An early repayment charge makes moving to a new contract too costly for most homeowners, so they’re better off sticking to the existing deal until the tie-in period ends.

You will usually have two options when it comes to paying an early repayment charge: you can either reimburse the lender you are leaving in a lump sum or raise the size of your mortgage with the new lender to cover the penalty.

Arrangement fees: Traditionally, it was to cover the administrative costs of the lender, but lenders more also use it to offset lower interest rates that they use to attract borrowers.

The choice of paying it upfront or adding it to the mortgage will usually be given to you, and there are pros and cons to both. The advantage of paying upfront is that you can reduce the total sum you owe and pay less interest over time. The benefit of applying that to the mortgage is that if for whatever reason, your remortgage offer falls through, you would not have wasted a significant amount.

Another alternative would be to apply it to the mortgage and then overpay as much as your bank would allow before the equivalent of the arrangement payment is cleared without incurring a penalty. Not all mortgages would have an arrangement fee, but those who do not have a higher interest rate are likely to recover the expense over the course of the contract.

Administration charges: It is to pay the new lender to give your title deeds to your lawyer, but it is often referred to as a release charge for deeds. Not all lenders charge this fee, and the option of paying it upfront or at the end of the contract might be given to you.

There is no interest to pay on it so consider leaving it until the end, unless you really like getting your bills paid up and out of the way. Finally, review your original documents (key facts diagram and mortgage offer) to get an idea of what the fee will be. Then contact your lender to see what that fee is now because it can change.

Booking fees: To secure a new interest rate, you might be charged a booking fee. It is often also called an application fee.

This fee has to be charged on application and is non-refundable, so you’re unlikely to get the money back if the remortgage does not go through.

Valuation fee: Lenders need a property appraisal so they can be sure that if you cannot repay the mortgage and your house is repossessed, there is ample value in it to clear your debt. The amount of valuation fee you pay varies from lender to lender and property price. You can get remortgage valuations free from most lenders.

Conveyancing fee: It takes some legal work to replace the existing lender with the new lender on the deeds of the land. Usually, a solicitor can do this, and if it is simple, it is likely to be included in the remortgage.

If, however, you are not only remortgaging to get a better rate, adding or withdrawing a partner (Transfer of equity) from the mortgage, there is likely to be some more legal work to do. A fee of a few hundred pounds could be incurred.

Broker fee: Some brokers will not charge a fee, but others will, and this can be anything from a fixed fee of around £300 to 1% of the value of the loan, which can be very costly.

When a broker charges an upfront fee, be vigilant if you plan not to go ahead with whatever deal they find, you may not be refunded. If they’re getting a good amount of commission, they might be able to reduce your fee, so it’s always worth asking.

Mortgage Saving Experts tries not to charge a fee. As long as we earn £695 in commission form a lender we will not charge you anything. If the amount of commission is less than £695 then we will ask you to top up the difference

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