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Remortgage & Save
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Remortgage – Get the most from your mortgage.
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By Becca Talbot
becca.talbot@consumerchoices.co.uk
Last year, forty per cent of home loans taken out were actually remortgages, as millions of clever borrowers took advantage of the UK’s hugely competitive mortgage market.
Once you’ve gone through the process of finding a mortgage, it’s unlikely you’ll want to do it again. However, a year or two on, it could be a costly mistake to not reconsider all the options, as remortgaging can be an effective way of cutting down your monthly costs.
Our guide will tell you everything you need to know about remortgaging, offering advice and guidance, explaining the process step-by-step.
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 should consider remortgaging your property:
- If you’re on a fixed rate mortgage, the amount of money you could potentially save from lower interest rates
- You have a special introductory rate that is coming to an end
- Your financial situation has changed, e.g. through work, family or illness
- If your home has risen in value and you are looking to release some equity
Depending on the size of your property, and the size of your current mortgage, being tied into a bad 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), like the majority of UK mortgagers, you are probably paying about two percentage points more in interest 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.
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"...when considering remortgaging, there are many factors that need to be weighed up..."
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Below is our step-by-step plan on preparing to remortgage your home:
Step 1: 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: 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: Set up costs?
You also need to see if there will be any set up costs with your new provider. For example, switching to a Nationwide Mortgage to a 5yr fixed rate at 6.45% will cost you £599.
Some providers will reduce these costs if you have another service with them. HSBC Mortgages are currently offering a remortgage special rate Life Time Tracker at 5.79%, with a fee-free transfer for existing HSBC mortgagers.
Step 4: Compare the market
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
Remember, when deciding if remortgaging is right for you, there are two sums you need to do:
- Your current mortgage’s interest rate vs. the new deal’s interest rate
- Your current mortgage’s exit fees vs. the new deal’s set up costs
Before you do anything, it is important that you do the mortgage maths to work out if you’ll be gaining from lower interest rates, or losing out through mortgage arrangement fees.
For example, let’s say your exit fees from your current provider are going to be £500, and your set up costs with your new provider are another £500, your total switching cost will be £1,000.
Now you need to compare this total to the potential monthly saving from the new mortgage. If you will be saving £200 a month, then your remortgage plan will pay for itself in just five months and thereafter, you’ll be £200 a month better off.
The cheapest mortgage deals often only last for two or three years, so you may have to consider remortgaging again after they end. Depending on how you find the whole process, you may want to go for a five-year deal instead. Although you generally won’t save as much each month, you may end up better off as you won’t incur remortgaging costs as frequently.
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As with quite a few of the popular providers, Bradford & Bingley will not let you remortgage your property if you have owned it for less than six months.
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
- 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.
- 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.
- 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.
- 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.
- Ask your current lender about what they can offer you and also shop around.
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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.
Then, 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. CreditChoices.co.uk recommends London and Country or Charcoal to help you with your decision.
You should also take into consideration the current market situation, as well as your own. 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.
Andy Williams, for 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.”
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