What is it and how does it work?
Remortgaging is when you take out a new mortgage with a new lender on a property you already own – normally your home. It’s a bit like switching to a new energy provider with a new contract.
One of the reasons you might consider remortgaging is to get a better deal than the one you’re currently on. If you’re about to reach the end of your fixed-rate period, or it’s already finished, you may want to shop around to fix a new rate that’s better than the one you’re currently paying. It also means you’ll know exactly what your monthly payments will be during the fixed term.
If your home has gone up in value, you may want to remortgage to release equity. Doing this will mean the overall amount you borrow will go up, but it can be a useful way to fund things like home improvements – provided the new lender is happy you can afford it.
Equally, during the period of your existing mortgage, your income may have gone up meaning you can borrow more against your current property – again, the exact amount will depend on what your lender believes you can afford.
An increase in your property value can also mean your loan-to-value ratio has improved. Because your property is worth more, you may be able to access better mortgage rates allowing you to borrow the same amount but at a better rate.
Things to think about before you remortgage
Firstly, it’s worth thinking about what you want from your new mortgage. This sounds obvious, but it will help define your selection criteria as you look at various mortgage options. Are you looking for lower payments, more flexibility to pay it off sooner, the certainty of a fixed rate, or to release equity? Talking to a mortgage adviser at this stage can help you understand your options based on your current circumstances and what you want a new mortgage to do for you. They’ll be able to show you options they think can work for you – saving you time and hassle.
One of the most important things to check before remortgaging is whether you’ll have to pay an Early Repayment Charge (ERC) to end your current mortgage early and, if so, how much it will cost you. Your current mortgage lender may also charge you an exit fee to cover their administrative costs of releasing your house deeds.
How does remortgaging work?
The process of remortgaging with a new lender works much like when you applied for your first mortgage. They’ll run a credit check on you, so it’s worth making sure your credit score is in good shape in the months before an application. They’ll also want proof of income that demonstrates you can afford the amount you want to borrow and that you can comfortably make the monthly repayments.
The first step is to complete an Agreement in Principle (AIP). It doesn’t guarantee your application will be approved, but it’ll give you a good indication without having to go through a full credit check.
Once you’re ready, you can submit your application with all the associated paperwork. Some lenders may want to send a surveyor to independently value your home, although you don’t necessarily need to be home for this to happen. If your application is successful, you’ll receive an offer, and the process of paying off your old mortgage, plus paying out any equity you’re releasing, will begin. You’ll need a solicitor to arrange the transfer of funds and the deeds, but that’s often offered as part of your new mortgage if you want to keep things simple.
So, if your mortgage is about to come to the end of its fixed term and you’re thinking about what to do next. Please get in touch with us at MAPIO Financial and we will help you to understand what it’s all about.