What is a remortgage?

Remortgaging means moving your mortgage from your current lender to a new one, while still staying in the same house.

The most common reason for remortgaging is to take advantage of lower interest rates and cut the cost of your mortgage payments. Moving to a new mortgage with a lower interest rate can save you thousands of pounds over the life of your mortgage. So it is definitely something worth thinking about.

You can also remortgage to fix your mortgage costs for a number of years, especially important when the economy is uncertain or to take money out of your house.

You don’t need to worry how to go about it – we can explain the pros and cons of remortgaging, find you a good re-mortgage deal and also take care of the technicalities and paperwork for you.

Can I remortgage to pay for home improvements?

Remortgaging your home to raise capital for major home improvements, such as converting the loft or buying a conservatory, can be a very cost effective way of borrowing the money you need.

If you only need to borrow a small amount, then you should consider an unsecured personal loan, the interest rate will probably be higher and the monthly repayments will be more, but you will repay the debt faster paying less interest overall

If you decide to remortgage to release some of the cash that’s built up in your property, lenders will ask you why. They want to know if you can afford the new loan, and what you will do with the money you take out.

Can I remortgage to pay off debts?

Remortgaging to pay off debts is worthwhile if you feel overwhelmed by your other debts and are confident that you can afford the remortgage payments, but if you increase your mortgage to pay off other debts and then find you can’t afford the mortgage payments, you could lose your home as you will have secured the debt on your home.

Releasing from your home to pay off other debts can help because mortgages usually have a lower interest rate than personal loans and credit cards, however you are likely to be spreading the repayments over a longer period than a personal loan so you could pay more in the long run.

If you are considering remortgaging to pay off debts, you must think carefully first. You need to identify the problem and take steps to make sure you don’t get back into debt again but with a larger mortgage to pay as well.

Should I consolidate my debts?

You may have several debts – an overdraft, credit cards, personal loans – all at a higher interest rate than your mortgage. Consolidating your debts brings them all together in one place with the lowest rate of interest. You can remortgage to borrow extra money to repay your other debts.

Things to consider
Although the interest rate is lower, you’ll be paying your mortgage for longer. It can help you out of today’s difficulties but you will pay more in the long run.

Your remortgage is secured against your property so, if you fail to keep up the remortgage payments, your home could be repossessed.

Always take advice before consolidating your debts. We can talk it through with you and see what options are available.

Do I have a good credit history?

Lenders look at your credit history and give you a credit score, the information on your credit file will influence whether you get a mortgage or not. A low score may mean you have fewer mortgage options and pay more.

We can find out which lenders are more likely to offer mortgages to people with low credit scores and can advise you on the best deal.

It may be worth finding out what your credit score is, even if you know you are creditworthy.

What type of mortgage do I want?

Mortgages fall into two broad categories: fixed rate and variable rate. The interest rate you pay depends on the type of mortgage you choose.

 – Fixed rate

Fixed rate mortgages have a set interest rate and last for a fixed period – typically 2 to 5 years although some allow you to fix for longer, perhaps 10 years. You are likely to be tied in for this length of time and may have to pay an early repayment charge if you come out of the mortgage during the fixed rate period

If you think you may move house during the fixed period, look for a mortgage that has a portability option, you can then take the mortgage with you to your new home.

The advantage of a fixed rate mortgage is that you know exactly how much it will cost for the whole period of the loan. The interest rate will not change, whatever happens to interest rates. This is helpful with budgeting over the next few years

 – Variable rate

As the name suggests, the interest charged goes up and down as interest rates change. You won’t know for certain how much your mortgage will cost in the future, but initially a variable rate should cost less than a fixed rate mortgage.

See our guide What are the different types of mortgages 

The rate will be linked to your lender’s standard variable rate (SVR), or it can be linked to another rate, often the Bank of England bank rate, known as Bank Base Rate (BBR).

Are there fees involved when remortgaging?

There may be. The fees will be similar to the fees you may have paid when you started your current mortgage

• arrangement fee charged by the new lender
• account closing fee charged by your current lender
• survey and legal fees
• early repayment charge (ERC) for leaving a mortgage deal before the end of the agreed period

Some remortgage deals have low or even no set up costs and there are plenty to choose from.

How much equity do I need in my property?

The equity in your house is the difference between the value of your house and the outstanding balance on your mortgage. If your property is worth £100,000 and you have a £75,000 mortgage, your equity is £25,000 or 25%.

When you first buy a home, you might be able to afford only a 5% deposit which means you have 5% equity in your home.

This is the Loan to Value ratio or LTV. Lenders generally charge a higher rate of interest if the loan to value is higher.

Can I remortgage to buy another house?

Remortgaging one property to raise capital is possible provided you have enough equity in your home.

There are a number of reasons you may wish to do this and the lender will want to make sure you can afford the higher remortgage payments out of your income alone. If you fail to pay the mortgage, you could lose your main home as well as the second one.

Typically, you would remortgage to buy another house that you intend to rent out or to move into and rent out your existing house.

Is it worth remortgaging to purchase a buy to let?
This is a useful way to get into the buy to let market and can be a good plan for people who have sufficient equity in their home.

You can remortgage to release this equity and use the money as a deposit on a buy to let property. This may be cheaper than taking out a specific buy to let mortgage because interest rates are higher for buy to let mortgages.

Your new mortgage is going to be higher than your existing one so you’ll have to demonstrate to the new lender that you can still afford the higher repayments. But you may be able to include the rent you expect to receive as part of your income when calculating whether you can afford a bigger mortgage.

There may be times when the property is empty or there may also be occasions when the tenants fail to pay the rent. You still have to pay your mortgage every month and, if you defaulted, you could lose the property altogether, you should ensure you have a contingency fund to meet your mortgage payments when this happens.

Can I remortgage because I’m getting divorced?

Getting divorced can be a difficult time, not least because you have to separate your finances, and your home is probably the biggest asset you have to split between you.

Assuming you own your house jointly, you have three choices

• sell the house, repay the outstanding mortgage and split what’s left
• keep the house, take over the mortgage yourself and buy out your partner
• allow your partner to take over the mortgage and buy you out.

If you want to keep the property yourself, you should ask your lender if you can transfer the existing joint mortgage into just your name.

The lender will want to make sure you can afford the repayments on your income alone before agreeing to this, if the lender doesn’t agree, you might be able to remortgage with a different lender.

You’ll become the sole owner of the property which involves legal work to transfer the mortgage into just your name.

If you need any remortgage advice, we are here to help. Our service is fee free and without obligation.