There might be many reasons why you want to stay in your current home but are still looking for a better deal from your mortgage.
Read on for a complete guide to changing your mortgage while keeping your home.
Remortgaging simply means that you are changing the company that provides you with a loan on your home. Many people change mortgage companies when they move house (see our New Home New Mortgage guide), but it’s also quite common to change your mortgage provider even if you stay at the same property.
Rather than moving home, you move the loan on your home, replacing the financial agreement with your current lender for a new lender, so your mortgage payments will be made to a different company, usual because it offers a lower interest rate, more flexibility or will allow you to borrow extra funds.
You should expect a remortgage to take anywhere from six to nine weeks from initial enquiry through to completion, so ideally you should start to look no later three months before a fixed deal is coming to an end, and it makes sense to start even sooner as some deals can be locked in six months ahead.
In general, most lenders won’t consider you for a remortgage until at least six months after you have become the legal owner of a property (whether you have bought it with a mortgage or acquired it in some other way), with some requiring a year’s wait.
In any event, if you are in the early stages of a mortgage that has a fixed rate or discounted period, there are a multitude of fees and charges that can make it very expensive to move during this time, so in general, unless you are terribly unhappy with the deal you are on, it is worth waiting until any initial term is over as you then won’t have to pay excessive Early Repayment charges.
In some circumstances, for example if you buy a property at auction, inherit it, or buy using cash but then require a mortgage to fund renovations, brokers such as Embrace Financial Services can help you find a specialist product called a Day 1 Remortgage that bypasses this requirement providing you can prove legal ownership of the property.
There are a number of reasons why you might want to change your mortgage provider:
When you reach the end of a fixed rate or discounted mortgage deal, then the lender will normally put you automatically on to the firm’s Standard Variable Rate, which is almost always an expensive option. Rather than wait until this happens, it’s much better to think ahead - it’s possible to lock in place a good remortgage deal up to six months before your fix ends, so you can start shopping around for the best remortgage rates a long way in advance. It’s always worth contacting your current lender when you’ve found an appealing deal, as it may be willing to match it, saving you the hassle and paperwork of moving.
Regardless of what type of mortgage deal you are on, you may decide every so often to shop around and see if there is a better deal out there. Depending on the type of mortgage you have, and how long you have had it, you may have to balance any savings against the cost of paying Exit Fees and/or Early Repayment penalties to escape your existing deal.
There are a variety of reasons why a change in mortgage might be appropriate. A new, better-paying job might mean you can afford to pay more each month, so you might want to get a mortgage with a shorter term, or one with more flexibility for overpayment. If your personal circumstances have changed – perhaps a marriage break-up or a new partner – then you might want to move your mortgage to find a more appropriate product, or you might have saved up enough to remortgage with a much lower LTV and so a lower interest rate.
Perhaps you would like to extend your home, or even go on a dream holiday? If you have been paying your mortgage for some time, you may want to look at whether you could take out a remortgage to release equity and borrow a slightly larger amount, known as “additional borrowing” or a “further advance”, giving you cash to help with your plans. This should always be undertaken cautiously, as any debt that is secured to your home can mean your home being repossessed if you don’t pay it back as planned. In addition, while the interest rate will undoubtedly be lower than borrowing money via a personal loan or overdraft, you will be paying it back over a much longer term, so it could actually be more expensive in the end.gage broker or independent financial adviser.
There are some instances where remortgaging might not be worthwhile or even possible, but you would be best to talk it over with an independent financial adviser or mortgage broker, such as Embrace Financial Services, to give advice on your particular circumstances. Examples include:
Either because you took out a large LTV mortgage initially and have paid very little off, or because your home has dropped in value since your original mortgage. If you are in negative equity it’s normally impossible to remortgage to a new company, although you might be able to negotiate a different deal with your existing lender.
At the other end of the spectrum, home-owners with less than £50,000 outstanding might find it difficult to find a deal that works for them, as the charges will outweigh the benefits. Few lenders will even accept a remortgage of less than £25,000.
Whether it’s the trauma of a job loss, or a happy arrival that means someone is taking parental leave, if you have less money coming in than you did when you took out your original mortgage it might not be possible to move as you are likely to have problems with the affordability checks.
Remortgaging to a different lender involves paperwork, legal fees and a degree of hassle, so it’s always worth approaching your existing lender. Just as mobile phone or TV companies will often have special deals that they only offer to people who are threatening to leave, you may find your existing lender will offer you a “product transfer” that will put you on a better deal with none of the aggravation of a remortgage.pendent financial adviser.
Mortgage companies which offer cheap loans want low risk borrowers, while those offering to lend in less than perfect circumstances will expect a greater interest rate to cover that risk. Therefore, the things that will affect the kind of remortgage deal you can access include:
If you have already paid off a good percentage of your existing mortgage, and particularly if your home has also increased in value, you may find you need a lower loan-to-value than you did on your current loan. Rates start to get significantly lower when the LTV is less than 80%, and cheaper still at 60%, as there is far less likelihood of the lender being out of pocket if the home had to be repossessed and sold.
Annoying as it seems, a remortgage – even if it’s for the same amount of money on the same property – will require a complete financial assessment. Mortgage companies will ask the same questions, and require the same level of proof of income, as if you were taking out your first mortgage – even if you have never had a problem with your mortgage payments. If you took out your last mortgage before 2014 when stricter financial assessments came in, you might even find that a lender says you can’t afford a remortgage that is cheaper than you are already paying!
Companies will also want to see that you have a good history of repaying what you borrow and make sure that you haven’t run up debts or CCJs, so they will run a check on your credit history. Although you will inevitably pay a little more, remortgages for bad credit are available, especially if you use a mortgage broker, such as Embrace Financial Services, to search for sympathetic lenders.
If you have taken out a mortgage in the past five or six years and nothing major has changed, then you are unlikely to have significant problems. Different lenders may have different views on more unusual properties, so you may find you have a smaller panel of lenders to choose from if you want to remortgage a thatched cottage, ex-authority home, high-rise or eco-homes.
However, remortgaging is likely to be difficult or impossible if
This is a fee for closing your existing mortgage and transferring the deeds, and is usually payable whether you are remortgaging or have finished paying your mortgage completely. The amount that will be charged should appear on your original mortgage documentation
Your lender has a legal charge over your home that needs to be transferred to the new lender, and this can involve a variety of fees, often amounting to several hundred pounds.
this is often a percentage of the outstanding amount of the mortgage, and is a fee that is usually payable if you leave during a fixed term or discounted period (so you may find that it is worth waiting until this initial period is over). It is worth contacting your lender to find out exactly how much these fees are, and at which point they finish, as in some cases they can continue even after the initial discount or fixed rate period has ended.
Lenders will normally insist on revaluing your home as part of the process, although the majority will offer a free valuation, and often free legal fees as well.
This is a fee payable to the lender for organising your mortgage, and can be as high as £2,000. You may also have to pay further fees, perhaps called administration, booking or reservation fees to your new lender. These fees can make a huge difference to whether it’s worth remortgaging, so either get your broker to do the sums or use an online remortgage calculator to see whether fees turn a good deal into a poor one.
If you use a mortgage broker to help you get the best deal on your remortgage, you will usually have to pay a fee, although with Embrace Financial Services the first appointment is always free of charge. You should be told exactly what you will be charged when you decide whether to engage a broker.inancial adviser.
It’s worth looking around at the deals that are available, then going to your lender to say that you have found a better deal and can the company match it? You may find you can transfer on to a more suitable mortgage product without the effort of a remortgage
Still worth a look, especially if you are deemed a good risk
These will help you to compare costs quickly yourself, but are less helpful if your circumstances are not completely average (and not all mortgage offers appear on them)
Are a new concept that uses artificial intelligence to match you with a deal. While these systems offer a fast, and usually free service, there is no ability to handle more complex personal circumstances or to offer individual advice that a real-life broker can give.
A reputable broker or adviser will do all the hard work for you, working out the very best deal for your individual circumstances and giving you a personal level of service, including access to broker-only deals. For example, Embrace Financial Services has more than 350 fully trained consultants across the country who can access thousands of mortgages from a wide panel of lenders, including exclusive deals.
If though you have had a mortgage before, unless you are simply changing to a different product with the same lender, a remortgage will require much the same information and proofs of status as a first mortgage, so are you likely to need to be able to provide:
With a fixed rate mortgage, the interest rate will not change for a set period of time – from a year to up to 10 years. Some lenders even offer lifetime fixed rate mortgages. The advantage of a fixed rate is that you know exactly how much you will have to pay for the period of the fix. Points to consider:
These mortgages offer a fixed level of discount off the lender’s SVR for either a specific term or the life of the mortgage. The monthly amount you pay will vary if the lender’s SVR changes (usually, but not always in response to changes in the Base Rate).
This is a variable mortgage, so the interest rate can change and you may pay more or less as a result. Unlike SVR, tracker mortgages are linked to the Bank of England Base Rate, so they will only change if the base rate changes, not on the whim of a lender. The rate is fixed at a certain percentage above the Base Rate. These deals are often cheaper than fixed rate deals because the risk to the lender is lower, but you need to be sure you could cope with your mortgage going up.
This is a sophisticated kind of flexible mortgage, where your home loan is linked with your savings and/or bank accounts. Instead of paying interest on the whole outstanding amount of your mortgage, the amount you have in savings is taken off when the interest is calculated. You don’t earn interest on your savings, but instead you don’t pay any mortgage interest on that same amount. If you have large amounts of savings, or even if you have high sums in your current account for the first half of the month, you make savings on mortgage interest that you can use to either reduce your monthly mortgage payments or reduce the term of the mortgage. Interest rates are slightly higher than non-offset mortgages, so use an online calculator or consult an independent broker such as Embrace Financial Services to be sure it is the right choice for you
Most people long for the day when they will own their own home and be mortgage-free, so if you are not borrowing any additional money then it makes sense to keep the term the same. So, for example, if you took out a 30-year mortgage with a three-year fixed rate period, when you come to remortgage at the end of those three years, try to take out a 27-year mortgage to keep yourself on track. You might find that you can even take the opportunity to reduce the term and opt for a 25-year mortgage instead.
Some of the mortgage deals that seem the most appealing come with large set-up fees – even up to £2,000. The impact of these fees on the overall cost of the mortgage is worse if you have a smaller amount outstanding, in which case it can be more economical to take a fee-free option with a slightly higher interest rate. There are online mortgage calculators to help you work it out, or ask an Embrace Financial Services consultant or broker for advice.
You can remortgage a buy-to-let property in much the same way as you can change the lender on your residential property. In general, lenders want to see a smaller LTV for buy-to-let remortgages, and they will also want the anticipated rent to cover at least 125-145% of the annual mortgage. In addition they will take into account your personal income and outgoings and the value of the property. This is a complicated area where you will undoubtedly benefit from the expertise of a mortgage broker or independent financial adviser.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Your initial mortgage appointment is without obligation. We normally charge a fee for our services; however, it is payable only on the submission of your mortgage application. The fee will depend on your circumstances but our standard fee is £549. Complex cases usually attract a higher fee. We will discuss and agree the fee with you prior to submitting any mortgage application.