This guide aims to help explain how a remortgage works. Your fixed rate is about to end and you’re looking to save some money, or perhaps you want to borrow some extra cash for home improvements, whatever the reason we’ve got you covered!
A remortgage is a new mortgage on a property you already own. You can choose to get a new mortgage with a new lender or stick with your current lender. The choice is yours and there’s plenty of options available for you to make the right decision.
The main reason why you might want to get a new mortgage on a property you already own is to save money.
If you’ve had a mortgage before, there’s a good chance you were on a fixed rate deal which offered a decent interest rate for a set number of years (2, 3, 5, etc.).
When that time ends, your lender is likely to move you off that decent rate and onto its Standard Variable Rate (SVR), which tends to be more expensive, meaning your monthly repayments will increase.
Increased monthly repayments can be avoided by choosing to remortgage and moving on to a better deal, either with a new lender or your current one. You should expect lower monthly repayments than you’d get on an SVR and perhaps even lower than you were paying on your previous fixed rate.
You want to lock down your monthly repayments for another few years.
If you’re the type of person who appreciates the stability of fixed monthly mortgage repayments but your fixed-rate deal is ending or if you’re worried about mortgage rates rising in general, you may just want to sign up for another fixed-rate mortgage, locked in for a few years.
This will bring you peace of mind and freedom to plan your budget.
1. You want to borrow more money
Remortgaging can also be a good opportunity to borrow money for things like home improvements, a holiday, a wedding, school fees, debt consolidation, divorce settlement or whatever else you need cash for.
2. You want to release money from a mortgage-free property
If you’re under 55 and have completely paid off your mortgage, you could remortgage and effectively take some of the money you’ve paid in back out to pay for whatever else you’d like.
3. Your home’s value has gone up
No matter what your property is currently worth, you only ever need to repay the original amount you borrowed when you first bought the property. This means that if your property went up by a significant amount, you could remortgage and take advantage of it.
Firstly, you need to own a property – whether that’s one with a mortgage or one you’ve already paid off and now own outright.
The lender will want to know that you can afford the monthly repayments of the new mortgage, and that you’ve enough working years left in you to pay it off in full – so they’ll look at your income and age.
They’ll also need to calculate your Loan to Value (LTV) ratio, which is basically how much you need to borrow to pay off your current mortgage compared to the value of your property. If your LTV is 95% or higher, you’re unlikely to be eligible for a remortgage.
Every lender’s remortgage affordability criteria is different, but our Mortgage Experts will tell you whether or not you’re eligible.
The first thing you need to do is find a new mortgage. You could go to a lender directly, or even see what your current lender has to offer, but they’re only going to offer you their own products, which means you could be missing out on better deals elsewhere.
If you go to a mortgage broker, they’ll look at deals from several – if not all – lenders, and you can be sure you’ve found a competitive deal.
Edward Mellor can offer you the very best deals from over 50 different lenders; they can find the deal that best suits your circumstances.
The broker will do some fact-finding to glean information about you, your income, outgoings, your family and your plans for the immediate future etc. They do this to help determine the very best deal can be found for you.
Simply make an appointment with one of our friendly experts and they’ll guide you through every step of the process.
The next step will involve you receiving a mortgage in principle, which certifies what you can borrow, in principle.
Next, you need to apply for the remortgage. At Edward Mellor Mortgages, we will handle the entire application for you, preparing everything before submitting it to the lender for you.
The lender will then carry out a series of checks, assessing what you can afford, examining how you’ve handled credit in the past, through a credit check, and potentially carry out a check that the property is worth what you’ve asked to borrow so that they can make a decision on your application.
If you’re approved, the lender will make you a mortgage offer – which is typically valid for three to six months. Once you’ve accepted a mortgage offer you can instruct your solicitors to move you towards completion.
Once completed you new mortgage deal will become live and if you’re remortgaging to borrow additional cash, the money is transferred to you.
Generally, remortgaging is a much faster process that getting a mortgage for the first time. Usually getting a remortgage takes between four and eight weeks although every case It’s much faster to remortgage than getting a mortgage for the first time.
Roughly speaking, it takes between four and eight weeks to remortgage – but every case is different.
When you remortgage, you’ll choose between various different types of mortgages. There are fixed-rate mortgages, where your monthly repayments stay the same for a set number of years, and variable rate mortgages, where your lender can change your rate from one month to another.
Rates usually change as and when the economy improves or worsens.
Discounted mortgages offer a discount on the lender’s SVR, while offset mortgages offset your savings against your mortgage balance to reduce the overall interest you pay.
Tracker mortgages follow the Bank of England’s Base Rate and set their rate a percentage above or below it. Capped rate mortgages work like variable-rate mortgages but have an upper limit to how high the rate can rise.
The short answer is: whenever you like – but there are reasons why you might want to wait.
Remortgaging before you’ve paid much off your current mortgage can also cause problems because your LTV may be too high for most lenders.
If you’re on a fixed-rate mortgage at the moment, you might have to pay a penalty of 1 to 5% of your balance to get out of it early.
So, if you had a mortgage for £300,000 and wanted to remortgage for a better deal after six months, it could cost you anywhere between £3,000 and £15,000.
If you wait until your fixed rate has ended or is about to end however, you can avoid Early Repayment Charges (ERCs). However, if there’s more to be saved by switching than the cost of the ERCs, it may still be worth remortgaging.
Yes, you can remortgage if you’re a contractor or self-employed. We’ll guide you through the process making sure you have everything you need to prove you have a solid income and have done so for the last two-three years.
Absolutely! Here at Edward Mellor, our dedicated team of experts are here to help you every step of the way. Get in touch today, we’re ready to find the very best deal for you.
Call us today on 0161 443 4830 or click here to fill in a contact form.