Remortgaging means you repay an existing mortgage and replace it with a new one, usually with a different lender.



It is now much easier to remortgage than it was in the past and many homeowners can benefit. Some lenders even have dedicated services for remortgaging with deals on legal and arrangement fees. The mortgage market is now huge and can appear complicated, so it may be difficult to know where to start.

What should I consider when remortgaging?

Firstly think about why you want to remortgage and workout whether the benefits will outweigh the costs. The main reason for remortgaging could be to reduce monthly payments by obtaining a cheaper mortgage deal on a lower interest rate. You may also want to change the repayment period, perhaps to ensure you have paid off the mortgage before you retire. Alternatively you may wish to release some of the equity in your property for other purposes, such as home improvements. This will be possible if the market value of your property is greater than the amount you owe on the mortgage. This may well be considerably cheaper than taking out a personal loan as the debt is secured on your property, but you should be careful. Remember if you have difficulties with your repayments in the future, you may have to sell your home.

The next step is to write down your monthly payments and check your current rate. If you are on a traditional standard variable rate mortgage then you are likely to make considerable savings by switching to another deal. With this type of mortgage the rate changes with interest rates. You may start off with a different kind of mortgage such as a fixed rate, but at the end of the fixed period it is likely to revert to a standard variable rate unless you specify otherwise. Some research suggests that over half of all borrowers are paying more than necessary because they are on a variable rate deal. If you can reduce the interest rate you are paying by one percentage point then you could save around £1,000 per year on a £100,000 mortgage.

However, it may be that you are locked into your current mortgage or the deal may include early repayment charges. Therefore you need to check the terms and conditions of your existing loan carefully before you go any further. The penalties incurred may mean it is not worth switching to another lender. You should also remember that there will be legal and arrangement fees associated with remortgaging, as well as the cost of a survey.

How do I get a good deal on a new mortgage?

In order to get the best remortgage deal you will have to do some research. You can go direct to lenders for information or use a mortgage broker to help.

A broker will compare offers from different lenders and may have access to special deals unavailable elsewhere. However make sure you check the fee for the broker's services and also do some of your own research. You can simply phone providers or use internet sites which provide mortgage calculators, search and comparison services. It could be worth asking your existing lender if they can offer you a better deal. This will cut down on costs and paperwork.

What types of mortgage are available?

As with any mortgage you have to decide how to repay the capital you borrow and how to pay the interest on the loan. You can pay off the capital gradually in monthly instalments with a repayment mortgage, or as a lump sum at the end of the term by investing in an endowment policy, Individual Savings Account (ISA) or pension mortgage. If investments in endowments or ISAs do not perform as expected you could end up with a shortfall when it comes to repaying the loan. However, if they perform better than expected you will have a surplus. A pension scheme provides a tax-free lump sum on retirement which can be used to pay off a mortgage.

The mortgage market is very competitive and constantly changing but you are likely to have a choice of four types of product to pay the interest.

A fixed-rate scheme means that your monthly payments do not change over the agreed period, usually 2 to 5 years. This means there is no uncertainty over your payments and you can work out your budget accurately each month. This is also a good option if you think rates might increase but there is no benefit to you if rates decrease. At the end of the period there will be options to transfer to another rate, for example a new fixed rate scheme.

A discounted mortgage will give you a percentage reduction on the lender's standard variable rate but only for the agreed term. If interest rates rise or fall so will your payments.

A capped-rate deal means your payments will not go above the set level. Your payments will rise and fall with interest rates but will only increase up to this agreed maximum. This method can also be helpful for budgeting each month.

A flexible mortgage will allow you to increase or decrease your payment as and when you choose. This could be appropriate if you want to pay off the mortgage early or perhaps if you have an inconsistent income. Some flexible features can also be available with the other types of mortgage.

Are there any extra costs?

It is very important to check the small print of any mortgage contract. In particular you should look out for extended redemption penalties. These may also be called early repayment charges or penalties. This type of charge has been reintroduced by some lenders to try and stop people remortgaging too frequently in an attempt to get the best deal.

There will be arrangement and legal fees and the cost of a survey to be added to any penalty charges. Some lenders may provide these services free of charge to tempt you into accepting their mortgage offer.

Other extras can include charges for telegraphic transfer of funds and a sealing fee when a mortgage account is closed and the property deeds released. If you are borrowing additional money when you remortgage, check there is no mortgage indemnity guarantee premium automatically included on your payments. If you cannot keep up repayments this guarantee protects the lender but not you.

Applying for a mortgage

Once you have decided on a new mortgage provider the next step is to ask for a redemption statement from your current lender. This will tell you how much is outstanding on your existing mortgage.

You will then need to fill in an application form from your new lender. They will also require proof of identity and details of your income including bank statements, payslips, P60 form and mortgage statements.

You will have to pay between £200 and £300 for your new lender to carry out a valuation survey on your home. There are also likely to be legal costs of about £350 and an arrangement fee of around £300. In some cases the lender may offer special deals or exemptions on these fees.

If the valuation survey is satisfactory then the lender will send you a mortgage offer of advance and work with your existing company to complete the remortgage. Your solicitor or new lender will then send you a completion statement. Once you have received this the arrangements are complete. The whole process of remortgaging should take about a month.