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You Are Here: Home > Personal Finance > Mortgages > Remortgaging
Remortgaging

What is it - How it works - How to save money

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Remortgaging involves cancelling your present mortgage and moving the loan to a different lender.

For example, your current mortgage is with the ABC bank but you want to remortgage with the XYZ Bank because their deal will save you £100 a month.

What is Remortgaging - How it can save you money
Remortgaging involves cancelling your present mortgage and moving the loan to a different lender.

For example, your current mortgage is with the ABC bank but you want to remortgage with the XYZ Bank because their deal will save you £100 a month.

For most people saving money is the number one reason for remortgaging. Although there can be other reasons such as signing up to a more flexible deal or different style such as a fixed interest rate. See below for more details.

When remortgaging note that -

  • It will always cost you money via associated fees and charges (getting out of the present deal and paying fees for the new one) - but the money is normally a great investment. For example, if remortgage costs are £1,000 but you save £100 a month (fixed for 2 years that's still an overall 'profit' of £1,400

  • When you sign a mortgage deal you're often locked in for a set period of time, usually 1-5 years. Yes, you can normally cancel at any time but during the lock-in period the exit fees can be enormous. But the good news is that when the lock-in period expires there's usually only a nominal fee to pay of between £100 and £200
The early repayment charges of a mortgage (see mortgage fees for more information) ensures that people can't remortgage 1-2 times a year. Instead the average remortgage period is probably in the region of 3-6 years although it is always possible to remortgage your present deal after a longer period of time.
A remortgage is a totally new mortgage

One point to remember is that lenders don't sell remortgages, ie a remortgage is not a separate product.

So when you remortgage you're actually signing a completely new mortgage deal. And this is important to understand as it means you'll have some options including extending the length of the mortgage and withdrawing some built up equity (if your property has increased in value).

The best time to remortgage

Personally I think the best time to remortgage is when you're trying to reduce your monthly repayments and this can be an extremely effective strategy. For example -
  • Your mortgage is currently £100k and are paying an SVR of 6.5%
  • That equates to a monthly repayment of £1,010
  • But you find a new deal charging 4.3% which is also fixed for 2 years
  • Monthly repayments would now be £820, a saving of £190 a month, which is a total saving of £4,560 over the 2 year period
  • Assume the remortgaging fees were just over £1,000 that's still a saving of £3,500
So who can do the above?

Probably at least 20% of mortgage holders, as a recent Mortgage magazine survey found that 46% of mortgage holders were paying their lender's SVR which traditionally is the most expensive interest rate. More information on what the SVR is on 'how mortgage interest rates work'.

Reasons to Remortgage
  • Lower monthly repayments - As discussed above

  • Release equity - If your property has increased in value the only way to get hold of some of the cash is to remortgage

  • Lock in a fixed interest rate - Maybe you're currently paying a variable rate and feel there's a good chance that interest rates will rise over the next 2-5 years, if so look to remortgage with a fixed rate deal

  • More flexible loan - Your current loan might not allow any overpayments, underpayments or payment holidays etc and you feel this kind of flexibility will be useful - so remortgage to a far more flexible loan. See Secret 3 - Buy simple and flexible - you can't read the future - which is one of this site's 10 Secrets to Good Personal Finance

  • Make home improvements - Many home improvements can add value to your property, especially if it's an extension. Use a remortgage to release equity to reinvest into your property

  • Consolidate your debts - Should be used as a last resort. If you currently have unmanageable debts for example owe £8k on a car loan, £12k on credit cards etc then chances are the interest rates will be high, maybe in excess of 20%. So remortgage to a larger loan and use the excess money to pay off the debts. However, although the debts will now be at a far cheaper interest rate they will only be fully paid when the mortgage gets repaid in full and that will probably be in 10-25 years which is a hell of a long time. So again, use this strategy only as a last resort

  • Help your children get on the property ladder - If you have children and they can't afford a deposit for a home, remortgage to release some cash and use it to pay for a 10%+ deposit

  • Get a decent mortgage - When you first took out your mortgage you might have been self-employed, or had a damaged credit file etc and so were offered an expensive deal (high interest rate, low LTV etc). But when your financial circumstances have improved, it is possible to remortgage for a far better deal
How to remortgage

The easiest and usually the cheapest way is to use a mortgage broker. See our free guide - How to find the right mortgage at the best price for more help with using a broker.

TIP - Consider remortgaging with your current lender

I'm a fan of trying to develop long lasting relationships with financial institutions, but only if they continue to offer good prices and services. So if you're interested in remortgaging check out the current market for a better deal and then ask your present lender if they can match it.

Mortgage companies pay a lot of money to bring in new business and it's normally always cheaper to keep present customers so it's not an unreasonable request. The worst they can say is no, and if so take your business elsewhere.

LearnMoney Comment :
Remortgaging if used correctly (move to a cheaper loan - move to a more flexible or fixed rate loan - release money to build an extension etc) is a good personal finance strategy.

However, remortgaging to fund a lifestyle, as many did during the last property boom, is conversely a bad strategy. Sadly many people who took that route, especially in America where property took more of a beating than the UK, now find themselves lumbered with vicious negative equity problems., ie their mortgage is worth more than the total value of their property.

Finally, as mentioned above the easiest way to remortgage and probably the cheapest is to use a mortgage broker.

FREE Report: How to get the right mortgage at the best price
It takes just 4 easy steps
How to make sure you don't overpay on charges
Learn to quickly sort through the market maze
How to get a flexible deal - why this is so important
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