How Does Remortgaging Work?
Remortgaging, as the name suggests, is when you switch the current repayment plan on your mortgage to another – whether it is with the same or different mortgage provider. This is usually done to help people better manage their mortgage repayments or get a better deal, so they can save money and get more flexible terms when their original mortgage or introductory offer comes to an end.
Remortgaging is more common than you may have initially thought, covering nearly one third of all mortgages throughout the UK. Through this guide, we will be taking you over the process of remortgaging, and answering some of the most commonly asked questions surrounding this.
How do I remortgage my home?
You can remortgage your home through a mortgage broker, lender or through your existing provider. Using a whole of market broker like Remortgage Quotes Online allows you to compare rates and deals from across the UK and find the right product for you. The process usually takes just a couple of weeks to complete.
When deciding that you want to remortgage your home, there are a few requirements and thing to consider including:
Your existing mortgage
- Your credit score
- Reducing your LTV band
- Compare different mortgage deals (fixed rate, tracker etc.)
The above factors are vital in ensuring that remortgaging your home is right for you, and further that you make the most out of the remortgage. Once you have taken the time to work through this list, and therefore have acquired a better understanding as to your financial situation, all that’s left to do is compare rates on remortgage plans and start the application process.
Your existing mortgage
Remortgaging your house is only a good idea if you are in a certain position with your current mortgage plan. Usually, mortgage will offer a fixed rate or tracker for the first few years and when this deal ends, your lender will then most likely place you on a standard variable rate (SVR), which usually comes with higher interest rates than both fixed rate and tracker mortgage deals.
One of the best times to apply for a remortgage is when one of these fixed rate or tracker mortgage deals are coming to an end. It’s best to first ask your current lender whether they can switch you to a better deal than the SVR before looking around for other providers.
Some mortgages come with high fees for switching or transferring, so you will need to weigh up the cost of these and the potential savings of moving to another mortgage.
As with most financial products, your credit score will have a significant impact on how successful your remortgage application will be. Lenders of a remortgage plan will want proof that you are financially responsible (and thus creditworthy) to keep up with your monthly loan repayments.
A mortgage broker or provider will check your credit rating through one of the three major UK credit reference agencies. This will give an overview of your repayment history for your existing mortgages, credit card bills, loan repayments, utilities, mobile phone bills and more.
Assuming that you have had no major blips on your credit record such as recent defaults, CCJs or IVAs, you are in a good position to get approved and the best rates possible.
Reducing your LTV band
An LTV band, or loan-to-value band, is the ratio of the amount still to be paid off on the mortgage. Its typically expressed as a percentage of the amount left to pay on the mortgage. The lower this percentage is, the less you are essentially borrowing and therefore the cheaper your remortgage could be. By comparison, if you borrow a lot more, closer to 80% or 90%, you are borrowing more from the bank or mortgage provider and therefore this is reflected in a higher rate. The rates of LTV are listed below:
Compare different mortgage deals
Comparing the different rates on remortgage plans is an incredibly useful way to help ensure you get the best possible remortgage deals. As previously mentioned, fixed rate and tracker mortgages are two of the best ways you could save money on your mortgage.
Fixed rates mean that the cost of your mortgage remains fixed through the loan term and therefore the amount that you pay each month does not change. This is useful for those homeowners and landlord mortgages who are looking for certainty in their monthly repayments or the rent that they charge, and they have peace of mind knowing that it will not be affected by market fluctuations.
Tracker mortgages are tracked in line with the Bank of England base rate and depending on the market conditions, you could pay less than other mortgage rates.
However, fixed and tracker deals only typically last a few years (2 to 5 to be more exact), and it will typically mean lenders will move you onto the SVR after this deal is up.
How much does remortgaging cost?
The cost of a remortgage will depend on various different aspects linked to your current financial situation and specific mortgage repayment plan.
Your remortgaging cost will vary based on:
- Your income
- Your credit score
- How much outstanding debt you have
- How much equity you have in your home
- How much you need to borrow in terms of LTV
- Current deals available including Bank of England base rate
However, with so many different mortgage brokers, lenders, banks and specialist finance companies available, using a comparison site like Remortgage Quotes Online can be an effective way to compare the different deals and options available and find the best one for you.