A simple guide to remortgaging

When someone purchases a home, due to the high expense of property, it is common for them to take out a mortgage to help them financially. A mortgage isn’t just a one-off transaction however – it is an arrangement between a mortgage lender and a customer that needs to be revisited and monitored from time to time to ensure that the customer is getting the best deal. The mortgage deal you are originally offered when you first approach a mortgage lender will typically change over the course of your mortgage term, which could mean that the monthly payments you make become higher over time. Those with mortgages should therefore look to remortgage when the opportunity allows and compare the market to ensure they are on the best mortgage deal.

Do you need advice on remortgaging? Financial Advisor UK has a national network of fully FCA- registered and approved mortgage advisors that you can be matched with to ensure you get the best professional advice along with the best deals available. Our advisors help you compare the market, find the right mortgage, and can offer advice on your circumstances.

Why should I remortgage?

When you take out a mortgage, it is usually for a long time, (around 25 years or more). Mortgage lenders do however offer mortgages for shorter terms such as 5 or 10 years. Mortgage lenders offer different deals depending on the length of the mortgage taken out. It is important to bear in mind that when a mortgage deal (such as a tracker or fixed rate) comes to end, you will be automatically switched to the lender’s standard variable rate (SVR). This will typically mean higher monthly payments. It is therefore worth remortgaging if any of the following applies to your circumstances:

Your current mortgage deal is about to come to an end

This will place you onto the lender’s SVR (Standard Variable Rate). Many of the best mortgage deals are only for a fixed amount of time. Some deals last 2 years, while others can last 5 or 10 years. This can fix your interest rate for that time, but after this time expires, the interest rate will go up, usually far beyond what you were previously paying. Remortgaging can help you get a new, more affordable fixed rate.

Your financial circumstances have changed

You may need a more affordable mortgage rate or one that offers mortgage holidays or the freedom to make overpayments.

Your home has increased in value since you first purchased it

This means that the equity you hold within your property has risen. As you repay a mortgage, the level of equity you hold in a property will continue to rise. Over time, this means that your loan-to- value ratio (LTV) goes down, as you will own more of the property than you did when you started. A lower LTV ratio will mean lower interest rates and could save you money.

You’d like to switch to a different mortgage deal

You’d like to change to a tracker mortgage, fixed-rate mortgage, or a capped mortgage.

How do I remortgage?

The best way to know whether or not you are on the best mortgage deal is to hire an independent financial or mortgage advisor who can search the market for you and find the best product (based on your current financial circumstances and future plans). Doing this can help you save lots of money in the long run.

If you’d rather do things yourself, the first way to remortgage is to check comparison websites and compare lenders. Always make sure that you approach lenders who are not on comparison websites too, as this will give you more options and variety to choose from. Always thoroughly research the features of any mortgage deal, checking the small print. Getting expert advice from a qualified financial advisor can be worthwhile, because if the mortgage was sold to you improperly, you can put a case to the Financial Ombudsman.

When should I remortgage?

You should ideally think about remortgaging around six months before your current deal comes to an end. This will give you plenty of time to properly search the market and find the right deal. Many mortgage lenders write to their customers a few months before their current mortgage deal expires, to inform them that they will be automatically switched to a Standard Variable Rate (SVR), if they do nothing, usually whilst inviting them to remortgage. The remortgaging process can take on average between 6 and 8 weeks, so being prepared is useful.

Do I need a solicitor?

Unless you are staying with the same mortgage provider, you will require a solicitor to do the legal work when you remortgage your property. The solicitor will carry out identity checks, property searches and will go over the terms in your new mortgage deal. Anything of concern will be presented to you to ensure that you understand what you are agreeing to. The solicitor will also collect the money from your new lender and will repay your existing mortgage lender. There are many lenders who offer free legal services as part of a remortgage deal, but there are some that do not, so check carefully as you may have to pay legal fees.

How much does remortgaging cost?

There are four types of fees that are associated with remortgaging your home.

Exit fees

If you sign up to a fixed or tracker rate mortgage deal but then want to leave that deal before it expires, you will need to pay exit fees, otherwise known as an early repayment charge (ERC). An ERC is calculated as a percentage of your outstanding sum, and can be quite costly. It is not unheard of for an exit fee to be 5% of a person’s mortgage.

Administration fees

Some lenders also charge administration fees to cover the costs of closing your account with them.

Arrangement fees

Many mortgage products come with arrangement fees to set up your new mortgage, which are normally around £1,000. This can be added to your mortgage balance, but bear in mind that you will pay interest on it.

Legal fees

Unless you have legal fees included in your new remortgaging deal and your new lender has agreed to cover them, you will need to pay legal fees to cover conveyancing and valuing your property.

If you’re thinking of remortgaging, Financial Advisor UK has a national network of fully FCA- registered and approved mortgage advisors who can offer the best professional advice, while helping you find the best mortgage deals available.

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