How do I remortgage my home?
Remortgaging is when you switch from one mortgage deal to another, either with your current mortgage lender or elsewhere. The more of your existing mortgage you’ve paid off, the more competitive deals you’ll typically qualify for.
Few people stick with their original mortgage for the whole term (for example, 25 years) until it’s paid off. Remortgaging activity soared during the first half of 2018 - total mortgage lending in April 2018 is estimated to have been £20.4bn, 13% higher than in 2017. The number of total mortgage approvals was up 11% compared to the previous year, with the increase primarily driven by remortgage approvals which were almost 30% higher than a year earlier.*
People choose to remortgage for a number of reasons:
- To reduce their monthly repayments
- To give you a more flexible mortgage
- To release equity from the property (often to raise money for home improvements or a personal project)
- To move to a new property
You should be able to switch deals whenever it makes sense to do so, though some lenders may charge you an early repayment charge to do so. You’ll need to compare the true cost (repayments, interest, and fees due over the initial period) of a new mortgage deal with your current deal, in order to understand what you could save by switching. A mortgage broker can find you the right deal for your circumstances and advise you on potential savings, taking into account all charges, such as any exit penalties levied by your current lender, arrangement fees, and valuation fees.
Once you’ve found a suitable deal, ask your current lender if they’d match the terms - your broker will inform you if another lender is offering a mortgage deal with more competitive terms. When you’ve chosen the right product, an application will be made. You’ll need to provide the same information when you originally applied for a mortgage, including proof of income and details of outgoings. If you’re successful, you’ll be issued with a formal mortgage offer.
Do I need a solicitor to remortgage?
If you remortgage with your current lender by simply moving to a new deal, it's considered a ‘product transfer’ and requires no additional legal work. This also applies if you’re just getting an advance (borrowing more on your existing mortgage deal with your existing lender) and the only charges are associated with increasing the loan and repayments.
If you remortgage with a new lender, you’ll usually need to appoint a solicitor to handle the legal side of the transaction which will involve paperwork and the transfer of funds once the remortgage is complete. Some mortgage advisers will liaise with the solicitor on your behalf, depending on whether the solicitor accepts documents directly from advisers.
Examples of when a solicitor is required, include:
- adding someone to the mortgage which means that the ownership of the property is changing - known as ‘transfer of equity’
- removing someone from the mortgage
The solicitor will fulfill the following:
- ID checks
- a redemption statement from your lender that details how much you owe and if there are any exit fees or early repayment charges due
- leasehold checks to comply with the new lender’s requirements
- property searches
- checking through the mortgage offer terms
- a bankruptcy search and a priority search at the Land Registry
- completion – when your solicitor receives the mortgage funds from the new lender, they’ll transfer the funds to pay off your old mortgage and any fees, sending any remaining money to you
- registering changes with Land Registry – once your previous lender has confirmed they’ve received the money and discharged their mortgage, your solicitor will inform the Land Registry of the remortgage and update the legal title for your home by registering the new mortgage
How do I remortgage to release equity?
The equity in your home is the amount that you own outright, without a mortgage hanging over the top of it.
If you don’t want to move home or downsize, or you require a cash lump sum - often to pay for home improvements that can add value - and have built up some equity in the property, then you can remortgage to borrow against the value contained in your equity. This works by taking out a new mortgage that’s larger than your existing mortgage.
There are two ways your equity can increase:
- Appreciation of the value of your home - if the value of your home has increased since you took out your old mortgage, the value of the percentage equity you own increases too. Remortgaging enables you to cash-in on this increase in value without moving. Because of the increase in value, your loan-to-value ratio will have dropped, but the amount you’re borrowing will go up.
For example: Your property is now worth £300,000 rather than the £200,000 you bought it for. Due to the amount you’ll have paid off since you took out the mortgage, your outstanding loan amount has fallen to £170,000. As a result, you’ll have £130,000 equity in the property (£300,000 minus £170,000).
By remortgaging for a higher amount than you actually owe on your existing loan, you can release some of that equity you’ve built up. Rather than remortgaging at £170,000, you remortgage for £190,000; the first £170,000 of that goes towards paying off the initial mortgage, leaving you an additional £20,000 to use on home improvements, to fund a personal project, or to pay off a car loan, for example.
You’ll still have £110,000 equity in the property (£130,000 minus the £20,000 you've released).
- Your home value stays the same but you pay down your mortgage debt with a repayment mortgage (not an interest-only mortgage). Freeing up cash by borrowing against the equity in your home and clearing your mortgage, is sometimes used by older homeowners to boost their retirement pot. By releasing equity in this way, your monthly repayments will rise and equity release interest rates tend to be higher.
Is there a credit check when remortgaging?
There are two types of credit checks - soft checks and hard checks. Too many hard credit checks can damage your credit rating whereas a soft credit check won’t, regardless of how many you have.
A soft credit check will show lenders some (but not all) of your credit report information. A hard credit check involves the lender taking a full look at your credit report. Such a check is unavoidable when you’re applying for a mortgage and you’ll only be hard credit checked once you’ve applied for credit.
When remortgaging, if you’re remaining with your current lender there’s no requirement for them to carry out a new affordability assessment or credit check, so long as you’re not borrowing extra money or making any major changes to your loan.
If you’re considering switching to a new deal, your mortgage adviser will run a soft credit check which won’t impact your credit score. When you’ve applied for a suitable mortgage deal, the lender will run a full credit check before making their final decision. There’s no avoiding a credit check once your application has been submitted, because the lender has to see your credit history and details of past payments.
I’m not sure if I should switch my mortgage. Can you help?
The benefits of remortgaging can be significant in managing what’s likely to be the household’s biggest cost since it could reduce your monthly payments. If you're not locked in to a fixed or discount rate deal (which commonly include an early repayment charge), you can remortgage at any time. However, some deals don’t allow you to switch before your initial term has ended, and you may be charged a hefty early repayment charge if you move early. You could also end up paying more in fees than you’ll save on a more competitive deal.
Signing up to Trussle’s free mortgage monitoring service will help make sure you’re always on the most suitable deal for you.
I want to switch now. Can you help?
Your circumstances and the term of your current mortgage deal will dictate whether it makes sense for you to switch right now. Some deals won’t allow you to switch before your initial term has come to an end, for example, so you may be charged an early repayment charge. You could therefore end up paying more in fees than if you switch before your initial term ends. The lender may also want to carry out their own property valuation.
To find out whether it’s time to switch now, use Trussle’s remortgage calculator.
Can I remortgage with bad credit?
This is dependent on the specifics of your financial situation. Finding a competitive mortgage deal with a low credit score can be tricky, and numerous applications for credit in a short space of time could have an impact on your credit score.
However, despite a poor credit history, there are several specialist lenders who may offer you a mortgage. Most lenders want to be satisfied that you haven’t missed any mortgage payments for at least the past six years. And, if you’ve had a county court judgement (CCJ) recorded against you or you’ve been through a debt management plan, these will need to have been cleared for three years before submitting a mortgage application. Some lenders will consider a shorter period of time, however.
How much are remortgage fees?
Depending on your mortgage deal, lender, and broker, fees can vary significantly. Some lenders offer fee-free mortgage deals, while others may charge fees in the thousands of pounds. Similarly, some mortgage brokers will charge fees of up to £500 while others including Trussle won’t charge a fee at all.
Mortgage lender and deal fees can include the following:
- An arrangement fee - sometimes called a ‘product fee’ usually about £1,000 but varies considerably. This can be added to the loan, but doing so would incur interest on the amount. If the arrangement fee is paid upfront, the lender will refund it if the mortgage doesn’t end up going through.
- An early repayment charge if you’re ending your deal early - normally between two and five percent of the outstanding amount.
- An exit fee - an administrative charge of £100 (or more) to cover the cost of your lender forwarding the title deed to your property on to your solicitor. You may have the option of paying this upfront.
- Legal costs - usually about £300 but is sometimes offered for free by the lender.
- Valuation fee - each time you remortgage you may incur a new valuation fee of about £300, although this depends on the property.
How long does the remortgage process take?
Remortgaging is typically a more straightforward process than buying a new home and usually takes between four and eight weeks. The process may be longer if there are any complications and if you’re switching to a new lender.
Using an online mortgage broker like Trussle can be quicker than using a traditional broker, and will speed up the search of finding the right deal. A broker will deal with the lender on your behalf and guide you through the whole process, which can be broken down as follows:
- Finding the right deal - Most lenders allow you to apply and secure a deal for three months before you complete, enabling you to move straight across to your new deal when your old one finishes.
- Submitting your application - Processing time varies and depends on your circumstances. In some instances, applications can be accepted the very same day, while other offers can take several weeks to approve.
- Assessment - A lender will assess your credit rating, income, and outgoings to ensure the mortgage will be affordable. They’ll then value your property.
- Offer and completion - Once all checks have been conducted, the lender will make you a mortgage offer. Your conveyancer will undertake the necessary legal work through to completion.