As you’ll know, when you get a mortgage, a lender gives you the money to buy a house, and you agree to pay it back with interest over a period of several years. For many homebuyers, home ownership doesn’t end with getting a mortgage. It usually includes remortgaging the house later on. But what is a remortgage, why would you want to remortgage a house, and how do you do it?
Here we’ll answer all of your questions. By the end you’ll have all the info you need, so let’s start the discussion with what a remortgage is!
How to Remortgage a House?
What Is A Remortgage?
A remortgage is a new mortgage deal from another lender that replaces your current mortgage deal. A remortgage is the process of moving your current mortgage from an existing lender to a new lender. It means collecting a new mortgage loan to pay off what you have left on your property’s mortgage.
How To Remortgage A House
To many people, getting a mortgage is straightforward, while a remortgage is less so. However, in terms of complexity, remortgaging is no different from mortgaging.
To remortgage a house, follow this step-by-step process:
- Ask your current lender for a closing balance
- Find a broker
- Consider all the costs
- Complete an ‘Agreement in Principle’
- Apply for your remortgage
- Receive a remortgage offer letter
- Review the offer
- Manage the transfer of your mortgage
Let’s take a look at these steps in a little more detail.
1. Ask Your Current Lender for a Closing Balance
Since remortgaging is collecting a new home loan to pay off the balance of the existing one, the first step to remortgaging is knowing what that balance is.
Knowing the balance of your house’s existing mortgage tells you how much you need to borrow if you choose to remortgage. You can ask your current lender for this balance.
Simply ask your existing mortgage lender for a redemption statement. The document will show you the balance of your mortgage. This is the amount you need to borrow when you remortgage.
2. Find a Mortgage Broker
After knowing how much you need to pay off your mortgage, the next step is finding a lender that’ll give you a good deal.
Looking for the best mortgage deals yourself is not advisable. Seeking expert guidance in the form of a mortgage broker is strongly recommended.
Mortgage brokers or advisers are an independent mortgage adviser. They know the market and can help you find the best deal for your circumstance. Also, they often have access to mortgage deals that are not on the mortgage market.
3. Consider All the Costs
After finding a remortgage deal that looks good, the next step is to check whether taking the deal will leave you better off.
You do this by considering all associated costs of the remortgage. Some of the costs and exit fees to consider when looking at a remortgage deal are:
Early repayment charge (ERC) – Many lenders have an early repayment charge that you need to pay to exit your mortgage deal. If your existing lender has one, you need to factor this into the total cost of your remortgage deal. You should also be interested in knowing if the prospective lender has an ERC, as that determines whether you can easily exit the deal in the future should you want to remortgage again and potentially have to pay an early repayment.
Mortgage Application fee – This is also called the “booking fee.” Some lenders require you to pay an application fee for them to set up your mortgage.
Valuation fee – When you apply for a remortgage, a lender would want to know the property’s current value. Some mortgage lenders require you to pay an amount for the valuation service.
Solicitor’s fee – In every mortgage or remortgage deal, a solicitor is needed to manage the transfer of the mortgage. You need to consider how much the solicitor will charge for their service.
4. Complete an Agreement in Principle
After considering all costs and determining that the remortgage deal is worthwhile, the next step is to find out if a lender is willing to lend you the amount you need.
You do this by completing an Agreement in Principle (also called a Decision in Principle). Many lenders allow prospective borrowers to complete an online agreement in principle to know how much they can borrow without a full credit check.
The Agreement in Principle involves just a soft credit check, so it will not impact your credit score. However, the “agreement in principle” is not a guarantee that your remortgage application will be approved. It only helps you access your options.
5. Apply for Your Remortgage
After determining how much a lender is prepared to lend you, the next step is to apply for a different mortgage.
The process involves filling out application forms and providing required personal and financial information. This includes details of your current deal, proof of earnings, paperwork for loans, etc.
6. Receive an Offer Letter
In the final steps of your remortgage, the lender will run a credit check and carry out a valuation of your house. If everything checks fine with the lender, they’ll approve your remortgage application and send you an offer letter.
The offer letter will state how much you can borrow and specify the terms of your remortgage deal. The mortgage offer letter is usually valid for three to six months.
7. Review the Offer
After receiving a mortgage offer letter, the next thing is to review it. You need to check that the details are correct. If you are happy with everything in the offer, the next step is to accept it.
8. Manage the Transfer of Your Mortgage
After accepting the remortgage offer, the next step is handling your mortgage transfer. However, this will be done by your solicitor or conveyancer. Some lenders will appoint a licensed solicitor on your behalf, or you may choose your own.
The solicitor will manage the paperwork and the actual transfer of funds. They will request the money from the new lender and use it to pay off the old mortgage.
Then the solicitor will register the new mortgage at the Land Registry. Once the title is registered, the solicitor will send the original document to your lender and send you a copy.
Why Should I Remortgage?
There are many reasons to consider remortgaging your house. Here we look at six great reasons why you should consider the remortgage process.
1. Helps You Avoid Standard Variable Rate (SVR)
Many people seek a remortgage when their existing mortgage deal is coming to an end. The reason is to prevent them from being moved onto their lender’s standard variable rate (SVR).
In the popular fixed-rate mortgage, your monthly payment remains the same for a set number of years, after which you will be moved to the standard variable rate.
The SVR is usually significantly higher than the rate of the borrowers’ initial deals. So, SVR significantly increases monthly mortgage payments.
One way to avoid SVR and paying more monthly is to remortgage onto a new deal. The initial rate of remortgage deals is usually lower than lenders’ standard variable rate. So, you’ll pay less monthly with remortgage deals.
2. Help You Get a Better Deal
The value of properties does not stay the same. If your property’s value has risen, you’ll have a better (lower) loan-to-value ratio (LTV).
When seeking to remortgage, a lower LTV gives you access to a wide range of deals and potentially a better interest rate to save money through lower monthly payments.
3. Help You Pay Off Your Mortgage Sooner
Another reason to consider a remortgage is to restructure your deal to shorten the time it will take to pay back.
If you are in a better financial position, you may want to pay off your mortgage as soon as possible so that you’ll fully own the house.
Remortgaging helps you do this. When you remortgage, simply choose a shorter term.
4. Raise Funds for Home Improvements
Remortgaging allows you to raise funds for major home improvement projects. It releases equity in your property to put towards home improvements.
That is, you take what you have left on your property’s mortgage and add the cost of your home improvement. Then you seek a different mortgage for the total amount.
5. Raise Funds for the Purchase of Another Property
A remortgage is the best way to make use of the increased value of your home without actually selling it. You can remortgage to use the equity in your home to buy another house. These remortgaging deals are excellent for buy-to-let investments.
In remortgaging to buy another property, the mortgage deal would equal the sum of your property’s existing mortgage and the cost of the new property.
However, remortgaging to buy another property does not come easy. This is because you need to convince the new mortgage provider that you can afford the refinancing of your property and the debt secured against the new property.
6. Raise Funds for Debt Consolidation
Having debt all over the place can be stressful. Remortgaging can be a way to manage your debt better.
It involves using some of the equity on your property to pay off your debts. In a debt consolidation remortgage, you take what you have left on your property’s existing mortgage and add all your debts. Then you seek a new deal for the total amount.
Thus, it lets you convert multiple debts into a single debt. The new mortgage lets you pay the debt over a longer period and lowers your monthly debt payment, making your debt more manageable.
How Long Does It Take To Remortgage A House?
How long remortgaging takes varies, depending on individual circumstances and remortgage needs. However, remortgaging usually takes 4 to 8 weeks after applying.
Providing accurate and relevant documents (like proof of earnings, documents of all outstanding loans, etc.) can help speed up remortgaging.
Final Thoughts
In simple terms, a remortgage is taking a new mortgage loan to pay off the balance of an existing one. Remortgaging has many benefits, including reducing monthly mortgage payments and releasing equity to fund home improvements or a second home.
Remortgaging your house involves eight steps which are fairly easy to follow. Once you do, then you’ll be able to remortgage and unlock all the benefits you were looking for.
Remortgaging a property is a great way to finance another property development, which could then be bought through an auction.