How to Remortgage Your Home.

Increasing mortgage rates and a lack of affordable homes in the UK housing market are inspiring many property owners to stay in their homes rather than seek out something new. This is where remortgaging can be to your advantage. Remortgaging allows you to:
  • access the equity that has built up in your home to help fund your lifestyle.
  • use the equity in your home to fund improvements like a new kitchen or extension.
  • transfer your existing mortgage package over to a new deal, either with your existing provider or with a new lender.
 
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage

How Does Remortgaging Work?

When you got your first mortgage, you probably fixed the interest rate for 2, 3 or even 5 years. During that time, if you were to change your deal, you would have incurred an Early Repayment Charge (ERC) which is around 2% to 5% of the total loan, depending on how many years you fixed your rate for.

Once you are around three to six months away from the end of your fixed period then you will be about to enter your lenders Standard Variable Rate (SVR). This rate is often much higher than your fixed rate and can substantially increase your monthly payments. But you are also free to switch your mortgage over to a new deal (product), either with your current lender or with an entirely new lender, who may be offering better rates.

You can search for a better deal yourself or can speak to a mortgage broker. A professional mortgage adviser can aid you in working out whether the act of remortgaging your property will save you any money or not. Sometimes it does not make financial sense to pursue a new lender, if you are already on a great rate or if your circumstances mean it is not wise to change your deal. 

First, talk to your lender and see what new rate they can offer. This is often called a Retention Rate or a Product Transfer and is usually at a higher interest rate than you could secure if you moved to a new lender. Searching for a more competitive rate with a new lender is something a mortgage broker can help you with and will take all the leg-work out of searching and comparing dozens of lenders rates, on your own. 

The advantages of sticking with your current lender are:

  • you will not have to prove your current income, 
  • no extra paperwork has to be provided, 
  • it requires very little effort or paperwork,

Why Should I Remortgage My Home?

There are a few different reasons to remortgage your property, including:

  • Achieving a cheaper mortgage rate – usually the most common reason to remortgage a home. Gaining a cheaper mortgage rate to avoid staying on a lenders increased Standard Variable Rate (SVR) can save you a lot of money.
  • Releasing money from your property – To release cash tied up in the building, homeowners can choose to remortgage. This can then be used for paying off debt, funding home improvements or even taking that dream holiday you’ve always wanted. Releasing equity from a property allows you to take advantage of the rising value of your home. 
  • Lower loan to value (LTV) – If the price of your home goes up, then you qualify for lower loan to value (LTV) interest rates, especially if you drop below set amounts like 90%, 75% or 60% LTV.

What Is The Remortgaging Timescale?

The time it takes to remortgage your home can depend upon many things. Even with the most popular lenders, it can take upwards of a month to get a remortgage granted.  

One of the biggest barriers that you might face when remortgaging your property is waiting for the Early Repayment Charge (ERC) period to end. As many fixed-rate packages and certain trackers will have an ERC in some form, and this is essentially a penalty for paying off your loan too early. As your provider makes their profit in the interest paid over time, so the sooner you pay it off the less they make.

 

What Are The Common Barriers Associated With Remortgaging?

Certain things can stop you from remortgaging your property, so you must know these factors before spending any time or money on the project. It is going to be difficult to find a remortgage deal if you find yourself in negative equity. 

You will need to stay with your existing lender if you have any problems with a low credit rating or bad debts. If you are self-employed and cannot provide sufficient evidence of your income and earning then you can not move to a new lender but your existing lender will not check your income for a new deal.

If your income has increased since you last took out a mortgage then it may well be worth considering moving to a new lender and getting the very best rates available.

Many of the larger banks will consider lending into retirement, but that will depend on how much income your pension or investments will produce once you stop working.

So if your pension income is not high then most banks will require you to repay their loan before your 70th or for a few lenders, your 75th birthday.