What Is Remortgaging and How Does It Work?

There are a lot of different reasons to remortgage. Your current deal may be coming to an end, another lender could offer a more suitable interest rate, or you may want to borrow more against your home.

Put simply, remortgaging gives homeowners an opportunity to review whether their existing mortgage still meets their needs, or whether a new deal could be a better fit.

In this remortgage guide, we explain exactly how remortgaging works, when you can remortgage and what you need to consider before applying. Let’s begin.

How Does Remortgaging Work?

The easiest way to understand the remortgage process is to think of it more like changing providers when a contract comes up for renewal. You will still have the same home and the mortgage debt will not disappear, but your new mortgage can have different terms, interest rates and an entirely new agreement.

When your remortgage completes, your old mortgage is repaid in full and the previous lender’s legal charge over the property is removed. Your new lender then becomes your mortgage provider and registers its own legal charge against the property.

It’s important to note that “legal charge” in this context gives the mortgage lender rights over the property as security for the money you owe. If you fail to repay the mortgage, this can ultimately allow the lender to repossess and sell the property to recover the outstanding debt. This is standard practice across the industry.

With this in mind, let’s take a look at a simple example to show exactly what can change when you remortgage in practice:

Figures used in the table are illustrative and assume a £180,000 repayment mortgage over 20 years.

In this example, the property value, mortgage balance and remaining term have all stayed the same. But what has changed is the mortgage deal. Remortgaging from Lender A to Lender B has secured a lower interest rate, helping to reduce the monthly repayment costs by around £99.

This is only one example of what can happen when you remortgage. In practice, your new mortgage could have a different interest rate, mortgage term, fixed-rate period or borrowing amount. Ultimately, your remortgage will be treated as a new mortgage, with the deal available to you depending on your circumstances and the products you qualify for at the time.

Remortgaging Vs. Switching With Your Current Lender

Remortgaging and switching mortgage products can sometimes be confused, but there is an important difference between them. While both can involve securing a new mortgage deal, they are treated and applied for in different ways.

Remortgaging involves securing a new mortgage with a different lender. This gives you access to a new range of mortgage products, interest rates and terms that may differ from those available with your current lender.

Whereas, if you stay with your current lender and move onto another mortgage product, this is generally known as a switching, or a “product transfer” within the industry.

Both can provide a way to change your mortgage deal, but the process, available products and eligibility checks can differ significantly. When considering mortgage refinancing, it is important to take the time to  compare the costs and potential benefits of moving to a new lender against switching products with your existing provider.

When Can You Remortgage?

There are no specific restrictions on “when” a homeowner can remortgage, and you do not need to wait until a fixed, tracker or discounted deal has finished before applying.

For most homeowners, the best time to remortgage will be at the end of an existing mortgage deal. This provides a natural opportunity to explore the different remortgage options because any applicable ERC period may also be coming to an end.

In practice, whether you can move will depend on the terms of your existing mortgage and whether a new lender is willing to accept your application.

It is important to note that if you are still within a fixed, tracker or discounted deal period, then your lender may charge an ERC for repaying the mortgage early. The total cost of these charges can be significant and may outweigh the savings from securing a lower interest rate with a new lender. This is why remortgaging early will not necessarily leave you financially better off.

You may also find that some lenders have criteria around how recently you purchased the property or took out your existing mortgage. This can be particularly relevant if you want to remortgage shortly after buying, as lender requirements vary.

Waiting until the day your mortgage deal ends is not usually the best approach. Starting your search early and speaking with a mortgage broker gives you more time to explore the market, compare suitable deals and prepare your remortgage before your current deal expires.

Why Do People Remortgage?

While there are many reasons to remortgage, the exact benefits will depend on your personal goals and what you want to get from your mortgage.

For some, the priority is to reduce their mortgage costs when an existing deal ends. For others, remortgaging can provide an opportunity to raise additional funds against their property for home improvements or other expenses.

Let’s take a look at a list of the most common reasons in more detail.

Avoid Moving Onto a Standard Variable Rate

When a fixed, tracker or discounted mortgage deal ends, you will ordinarily be moved onto your lender’s standard variable rate (SVR).

SVRs are set by the lenders and can change over time and can often be more expensive than other mortgage products that are available on the market. As a result, homeowners who are approaching the end of their initial deal often choose to remortgage into a new mortgage deal, rather than automatically moving onto their lender’s SVR.

The key point to keep in mind here is that remortgaging isn’t automatically cheaper. It is still important to compare the interest rate and overall cost of a new mortgage against your existing options, including any fees involved.

Consolidate Existing Debts

Remortgaging for debt consolidation involves borrowing additional money against your property and using those extra funds to repay any unsecured debts, such as credit cards or personal loans.

Although you are increasing your mortgage borrowing to repay other unsecured debts, debt consolidation will not remove what you owe. Instead, it combines those debts into your mortgage, allowing you to repay them as part of your monthly mortgage payments.

This can help some homeowners simplify their finances by bringing multiple debts into one place, rather than having to manage several separate repayments each month.

Additionally, mortgage interest rates can often be lower than the rates charged on many other forms of unsecured borrowing. However, a lower interest rate does not necessarily mean you will pay less overall.

It’s important to note that consolidating unsecured debts into your mortgage means securing that borrowing against your home. This could result in you paying more interest over a longer repayment period, while your home could be repossessed if you do not keep up with your mortgage repayments.

Access a Better Mortgage Deal

Remortgaging can provide you with an opportunity to compare your current mortgage against other mortgage products and deals that are available from other lenders.

This can be particularly beneficial if your circumstances have changed since you first took out your mortgage, as you may now qualify for deals that were not previously available or that better suit your current situation.

For example, you may have increased your income, improved your credit history or repaid enough of your mortgage to reduce your loan-to-value (LTV). Your property may also have increased in value, which can further reduce your LTV if your mortgage balance has stayed the same or fallen.

Changes such as these can affect the mortgage products and interest rates available to you. A lower LTV can be particularly important when remortgaging because lenders often offer different products at different LTV bands. Moving into a lower band could therefore give you access to more competitive mortgage deals.

Borrow for Home Improvements

Remortgaging could also allow you to borrow additional money against your property to fund home improvements. This could include an extension, loft conversion, new kitchen or any other major renovation work.

You will need sufficient equity in your property to support the additional borrowing. You may have built up equity by repaying your mortgage, because your property has increased in value, or through a combination of both. Subject to the lender’s criteria, you could then remortgage for more than your current outstanding balance and use the additional borrowing towards the cost of the work.

For example, if you wanted to release £30,000 for home improvements, your remortgage could look like this:

• Property value: £300,000
• Current mortgage balance: £180,000
• Current LTV: 60%
• Additional borrowing: £30,000
• New mortgage balance: £210,000
• New LTV: 70%

In this example, remortgaging for £210,000 would repay the existing £180,000 mortgage and provide £30,000 in additional borrowing towards the home improvements.

However, having enough equity does not automatically mean you will be able to borrow the additional amount. As a remortgage is treated as a new mortgage, the new lender will need to assess your income, expenditure, credit history and overall affordability before deciding how much it is prepared to lend.

It is also important to consider the longer-term cost. Increasing your mortgage means taking on more secured debt and could increase your monthly repayments and the total interest you pay over the mortgage term.

Do You Need a Valuation to Remortgage?

A property valuation allows the new lender to establish the current market value of your home. As the property acts as security for the mortgage, its value is crucial for calculating your loan-to-value (LTV) and determining how much the lender may be prepared to lend.

Depending on the property and your chosen lender, the valuation could be completed in several ways, including:

• Automated valuation model (AVM): Property and market data are used to estimate the value without a physical inspection.
• Desktop valuation: A surveyor assesses the property remotely using available property information and sales data.
• Physical valuation: A surveyor visits the property to assess it in person.

The method of valuation will generally be determined by the lender rather than the homeowner. Factors such as the property type, location, age and information available can all influence which method is used.

It is important to remember that a mortgage valuation is primarily carried out for the lender’s benefit. It is not a substitute for a detailed property survey designed to identify structural problems or defects with your home.

Should You Remortgage?

Whether you should remortgage will wholly depend on the potential benefits of changing lenders compared with the costs involved. As such, there is no “one size fits all” answer to should I remortgage?

Two homeowners with similar mortgage balances could have very different options depending on their income, property value, loan-to-value (LTV), credit history and the terms of their existing mortgage.

Instead of looking at remortgaging in isolation, it’s important to take a step back and consider the entire picture. What do you actually want to achieve by changing your mortgage?

Are you looking to:

• Reduce your monthly repayments
• Change the length of your mortgage term
• Borrow additional money
• Secure a particular type of mortgage deal

If the answer is “Yes” to any of the above, then the next question is whether remortgaging or switching lenders is best to help you achieve that goal on suitable terms. For example, remortgaging could make sense if:

• Your existing deal is approaching its end: Moving to a new lender can allow you to secure a new mortgage deal with competitive rates, rather than moving onto your current lender’s SVR.
• Your mortgage options have improved: Changes to your income, credit history, property value or loan-to-value (LTV) could mean you now qualify for deals that were not previously available.
• Another lender can better meet your needs: Different lenders offer different products, terms and features, so changing providers could give you access to a mortgage that better suits your circumstances.
• You want to change your borrowing: Remortgaging could allow you to adjust your mortgage term or borrow additional money, subject to affordability and lender criteria.

On the other hand, remortgaging may be less suitable if the cost of leaving your existing mortgage outweighs the potential benefit, you cannot qualify for a more suitable deal, or changes to your circumstances make it harder to meet a new lender’s affordability criteria.

Ultimately, having a reason to remortgage does not automatically mean that changing lenders will leave you better off. It is also important for you to consider the cost of switching and whether the new mortgage provides enough of a benefit to justify the move.

Speaking with a mortgage broker can help you explore the options available, compare rates and overall costs, and understand whether remortgaging is going to be the best option for you.

How to Save Time and Money Changing Lenders

Remortgages are new mortgage applications and involve navigating the wide-market of lenders searching through different mortgage products, eligibility criteria and costs.

Rather than approaching lenders individually, a whole-of-market mortgage broker can search the market and narrow down the options that are suitable for you.

At Boon Brokers, our expert mortgage advisers can search thousands of mortgage products from more than 90 lenders across the market. We will assess your circumstances, review the options available and recommend a remortgage that is suitable for your needs.

You will also have a dedicated mortgage broker handling your remortgage from application through to completion. They can deal directly with the lender, manage the progress of your application and keep you updated along the way, helping to take much of the work involved in changing lenders off your hands.

Our mortgage advice is completely fee-free, so you won’t pay us a broker fee for our advice or for arranging your remortgage. We’re here to help you find a mortgage that works for you.