Mortgage Guides

Remortgage – Get the most from your mortgage

By Becca Talbot and Emma Lunn becca.talbot@consumerchoices.co.uk

Remortgaging to a better mortgage deal could save you hundreds, if not thousands of pounds. This guide takes you though the process step-by-step (Updated 4/10/11).

Remortgaging is basically redeeming or paying off your current mortgage by taking out another mortgage. Most people remortgage because it will save them money.

Our guide will tell you everything you need to know about remortgaging, offering guidance and explaining the process step-by-step.

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• What is remortgaging?
• Remortgaging step-by-step
• Doing the mortgage maths
• Things to remember
• Remortgaging and equity
• Our recommendations

What is remortgaging?

Remortgaging is changing your current mortgage deal, and most probably your current mortgage provider, to another, so your monthly repayments suit your circumstances.

Since initially taking out your mortgage, a lot may have changed. There are four main reasons why you might consider remortgaging your property:

1. If you’re on a fixed rate mortgage, the amount of money you could potentially save from lower interest rates
2. You have a special introductory rate that is coming to an end
3. Your financial situation has changed, e.g. through work, family or illness
4. Your home has risen in value and you are looking to use the equity to get a better loan-to-value (LTV) deal

Depending on the size of your property, and the size of your current mortgage, being tied into an inappropriate mortgage could be costing you hundreds or even thousands of pounds each year. Remortgaging can often be the most effective way to saving yourself a substantial amount of money.

If you’re paying your provider’s standard variable rate (SVR), you might be paying more than the cheapest deals on the market, so it’s always worth shopping around.

Use our mortgage calculator to compare the mortgages on offer at the moment

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Remortgaging step-by-step

If you are considering remortgaging your property, before you apply to do so, there are many factors that need to be weighed up. You need to bear in mind your current provider will probably charge"exit" fees for switching your deal, and with any prospective provider there will be set up costs.

Below is our step-by-step plan on preparing to remortgage your home:

Step 1: Assess your current mortgage

You need to look at your current mortgage deal and what it’s offering. You’ll need to know exactly what you’re paying each month, both in repayments and in interest. You can find these out by calling your mortgage provider, or by checking your latest annual statement.

Step 2: Check for exit fees

You need to look for any exit fees that may be applicable if you leave your current mortgage deal. Some providers may not charge fees if your switching deals with them, but if you’re leaving your provider as well as your deal, fees are likely. If your mortgage is relatively new, you may be tied into a special rate deal. Often there are penalties for moving mortgages while you’re still in the “honeymoon period,” and some providers can charge redemption penalties, even after the special rate has finished.

Step 3: Find out the set up costs

You also need to see if there will be any set up costs with your new provider. Most providers charge an arrangement fee and some also charge valuation and legal fees. Some mortgage lenders offer “fee-free” deals but these normally come with higher interest rates so it’s important to do your sums.

Step 4: Compare the market for mortgage deals

After working out the costs to remortgage, it is worth comparing different mortgages on offer to see how much you could be saving. Compare mortgage quotes from a shortlist of three or four providers, and then compare these to you existing deal.

Use our mortgage comparison service, to find the right mortgage for you.

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Doing the mortgage maths

You’ll need to sit down with your calculator when deciding whether remortgaging is right for you. The best way to compare deals is to look at what it will cost you over the fixed or tied-in period. For example, if you opt for a two-year fixed mortgage then work out the total amount you’ll pay over two years.

These sums will include your monthly payments, the arrangement fee, any valuation or legal fees and any exit fee from your existing lender.

For example, say you are paying 5% with your current lender on a £100,000 repayment mortgage over 25 years. This means you’ll be paying £584.59 a month which equates to a total of £14,030 over two years.

You might be considering switching to a mortgage at 4.5% which sounds cheaper. However, say the new deal comes with a £1,000 arrangement fee, £200 valuation fee and £200 legal fee. Your monthly payments on this deal would be £555.83 which equates to £13,340 over two years. However when you add on the fees, which come to £1,400, you’ll be paying a total of £14,740 over a two-year period. So even though the new mortgage has a lower interest rate than your existing product you’d be better off staying put.

In some cases you’ll also have to take into account early repayment charges or exit fees from your current lender. Early repayment charges are generally levied during the fixed or tied-in period of a mortgage (so two years on a two-year fixed product) and are normally a percentage of the outstanding loan amount. “Exit fees” cover the administration costs of transferring your mortgage and are charged whenever you leave. Exit fees are normally between £150 and £300 depending on your lender and the amount should be written on your original mortgage documents.

There are many different types of mortgage, but only a few of them will be right for you. Read our guide to mortgages to learn about what’s on offer, then use our mortgage calculator to compare the mortgages on offer at the moment.

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Things to remember

1. Check your annual mortgage statement find out your current interest rate, and to see what you’ve paid and what’s outstanding. The statement will also tell you if any early repayment charges apply, and the date they stop.
2. You should review your mortgage whenever a special deal ends. Often when an introductory deal has finished, interest rates can rise quite dramatically, and most of the time this goes unnoticed. You could be paying thousands more in interest, with out realising.
3. If you have a repayment mortgage, rather than an interest-only mortgage, make sure that when you are comparing mortgages you compare like for like.
4. You need to also make sure you compare deal periods like for like, for example, if you have 20 years left to pay, make sure you’re comparing it with a new 20 year deal. If you compare it with say, a 30 year deal, you will get a false impression of how much you could save, and will be paying your mortgage for a further 10 years.
5. Ask your current lender about what they can offer you and also shop around.

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Remortgaging and equity

Current conditions in both the housing and mortgage markets mean remortgaging is not as easy as it has been in the past. The best mortgage deals are now only available to people with at least 40% equity in their homes, and the less equity you have the more difficult it becomes to find a decent mortgage deal.

The amount of equity you have in your property is described by the loan-to-value ratio (LTV). If your mortgage is worth 60% of your property’s value (so you have 40% equity) then your LTV is 60%.

LTVs are very important when it comes to remortgaging and mortgage lenders advertise what LTV the product is available for. The most competitive products will be for LTVs of 60% or below while borrowers with a LTV of 90% or more will struggle to find a decent mortgage rate.

In some cases borrowers will be in negative equity. This is where the outstanding mortgage balance is bigger then the value of your property (a LTV of 100% or more). In this situation it’s pretty much impossible to remortgage to a different lender as no lenders will currently lend you more than your property’s worth.

If this applies to you it’s best to talk to your current lender about whether they can offer you an alternative mortgage deal. Alternatively you will have to stay on your mortgage product’s “go to” rate which is often the lender’s standard variable rate (SVR). In the past this has been an expensive option but the low base rate means many lenders’ SVRs are low at the moment so borrowers who revert to their lender’s SVR may actually see their monthly repayments fall as a result.

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Our recommendations

Remortgaging can be a bit stressful and time consuming. Use our mortgage comparison service before you go any further – we will search through over 5,000 mortgage providers and list the best options for you, showing you how much money you could potentially save yourself.

Before you start applying to remortgage, you may want to get a second opinion from an independent mortgage broker. Although these can sometimes be costly, the advice they give could save you even more. Two of the UKs long-established mortgage brokers are London and Country and Charcol t

You should also take into consideration your own circumstances. You may have just had a promotion at work, or welcomed a new addition to your family, meaning your current mortgage repayments might need to change. Our mortgage overpayment guide will show you how paying off your mortgage quickly could save you thousands.

• If you have a variable rate loan of over £30,000 and no early repayment charges, Natwest could offer you a better deal on your mortgage. And even if your current home loan does have early repayment charges, you may find that the gains outweigh any costs incurred.
• If your home loan is below £25,000 however, it would be a good idea to check up first on fees that you might have to pay when you remortgage. You could find that the savings you make on your new home loan are actually less than the cost of the fees required to switch.

Chris Eagle, commercial manager at Creditchoices.co.uk recommends: “If you’re considering remortgaging your property, going directly to the potential mortgage providers, rather than through an independent mortgage broker, could save you quite a bit of money.
“When you think you’ve found a good deal, it is always worth going back to your current provider to see if they will match the deal or offer you something similar to keep you as a customer. This will save you some bother in switching, and hopefully some money too.”

THINK CAREFULLY BEFORE SECURING ANY DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.