How Does Remortgaging Work?

Remortgaging is where you take your current mortgage and switch it for a different mortgage deal. It may be a mortgage with your current lender or a different lender.

You may consider a remortgage when the fixed-term on your existing mortgage comes to an end. If you are reluctant to switch to another fixed-term deal, your lender may switch you over to a standard variable rate mortgage. If that happens, you could find yourself paying twice the interest rate you were paying before. Obviously, that is not desirable. Here are a few things you should know about how remortgaging works and when it could be beneficial for you.

How Does Remortgaging Work?

When you think about a new mortgage, do you immediately think about taking on more debt? Some people do use remortgaging as a tool to take some of the equity from their property and then use that equity to pay off expenses or make home improvements. However, most people see remortgaging as a way to lower their monthly payments.

You can think about it as trying to get a better deal for your cable bill or your Internet. You get a new contract that has lower monthly payments but provides you with the same service.

For most people, remortgaging is a cut and dry process. It is relatively easy to find a new mortgage and apply for it. However, the ins and outs of remortgaging will vary based on whether you choose to work with your current lender or opt to use a new one.

Many people choose to go through the remortgage process between eight and six months before their fixed-rate loan ends.

Should You Stick With The Existing Lender Or Make A Switch?

There are benefits to sticking with the lender you currently have. Your existing lender has all of your information on file and information about your property. With this option, you won’t need extra legal work or pay extra fees. You move from one deal to another and start paying your new fee.

Switching to a new lender is a bit more complicated. You will basically need to go through the same process you went through when you got your mortgage. This includes getting up-to-date financial information, earnings information, and documents connected to any outstanding loans. The new lender will look at your credit history to make sure that everything is in order and then arrange a property valuation.

Things To Think About Before Remortgaging

Before you make the switch to a new mortgage deal, make sure that your lender is offering a fee-free mortgage. If not, the fee of the product could minimize the savings you get from remortgaging.

Is there an early repayment charge for your current mortgage? You will have to compare the fee for paying off your mortgage early against any savings you receive to ensure that remortgaging is financially profitable for you.

Find out your loan to value number. The lower the loan to value is, the more mortgage deals you may qualify for. To find out your loan to value number, take your outstanding mortgage balance and divide it by your property’s current value.

For example, if your outstanding mortgage is 100,000 pounds, and your property has a value of 250,000 pounds, then 100,000 divided by 250,000 is a 0.4. This means that your loan to value rate is 40 percent.

Make sure that you are actually in a position to qualify for a loan. Just because you qualified for a loan some time ago does not mean that you meet the qualifications to get a new loan today. Part of qualifying for a loan is seeing to it that your credit score is healthy. Remember, even though you had a loan, your current lender or your new lender will go through the same affordability checks you went through the first time around.

Conclusion

There are several reasons why people opt to get a new mortgage. To take advantage of interest rates, you may want to switch from an interest-only mortgage to repayment, or you may want a better rate than you are currently getting. Either way, before making a switch, do your due diligence to make sure that your new mortgage works right for you.

Author Bio

Julian Carter is a farmer of words in the field of creativity. She is an experienced independent content writer with a demonstrated history of working in the writing and editing industry.  She is a multi-niche content chef who loves cooking new things.