Remortgaging Explained - The Basics




Remortgaging Explained - The Basics


Remortgaging your property is a potential way to save money on your existing mortgage payments.

Financial institutions want to retain their share of the remortgage market in the current economic climate so there are many opportunities for borrowers to reduce their monthly payments.

Remortgages are replacement mortgages for existing mortgages that involve either lower payments or greater value for money. Remortgages may be obtained either from your existing lender or a different one.


Reasons to Remortgage


There are a number of reasons for remortgaging, one is to reduce monthly mortgage payments or to shorten the term of your mortgage for the same payment. If the interest rate on your mortgage is the lenders standard variable rate (SVR) then you can usually find a more competitive mortgage. The new mortgage could be a new product from your existing lender or from one of their competitors. With a more cost-effective mortgage it would be up to you whether you pay less as a monthly repayment over the same term of the loan or whether you pay the same amount over a shorter term.

Another reason for remortgaging could be extending the loan amount for home improvements. This option can be much cheaper than buying a new property because the act of moving house itself is an expensive business. A remortgage can be an easy way to raise the necessary money.

In the same way that the funds raised may be used for home improvement they may also be used for practically any purpose such as large one-off expenses like weddings.

Remortgage research has become relatively easy because many lenders include mortgage calculators on their websites, however this should be a preliminary step before getting full details of individual lenders terms and conditions.




Types of Remortgage


There are as many types of remortgage as there are mortgages, it is well worth doing the research to find out as much as possible about the range of remortgage types available so that you get the best available deal for your circumstances.

Common types of remortgages include:


Standard Variable Rate (SVR): at the end of a mortgage deal period, for example when a 2-year fixed rate mortgage reaches the end of the initial 2 years, the standard variable rate is usually what the interest rate reverts to. Virtually all mortgage interest rates are calculated in relation to the SVR so if any repayments cost more than SVR repayments then it is not a good deal.

Discounted Rate: a discounted rate mortgage is one where the interest payable is calculated at a certain percentage below the SVR, these are fixed term offers, the longer the offer then usually the smaller the discount offered. The interest usually returns to SVR after the term of the offer expires.

Fixed Rate: This type of mortgage is where the rate of interest is fixed for a certain period, between two and five years usually. At the end of the period, the rate will normally revert to the SVR. The biggest advantage of this type of mortgage is that it allows accurate budgeting because monthly cost never changes. The major disadvantage is that if the SVR should drop during the fixed rate period then you will be paying more than you would outside that period.

Capped Rate: Interest rates are variable up to a certain rate for this type of loan offer. The offer period is usually two years. The overall payments may be lower if the interest rates fall but will never exceed the capped rate if they rise.



The most common types of remortgage are:


Other Types of Remortgage


Tracker Mortgage: The interest rate on this type of mortgage directly follows the Bank of England Minimum Lending Rate. This means that you are not tied to the mortgage lender’s Standard Variable Rate (SVR). Many financial institutions are quick to raise their mortgage rates when the Bank of England raises its rate, but are much slower to follow when the rate falls.

Droplock Mortgage: A droplock mortgage is a type of tracker or discounted mortgage which includes the option to switch to a fixed rate mortgage, without penalty, during the initial term. This option is useful in case the interest rate should rise too high then you’d switch to a fixed rate.

Extra Mortgage Features

Besides the different ways that monthly repayments can be calculated based on interest, many mortgages incorporate additional features that may be useful:

Flexible Mortgage: these types of mortgage allow variations in payments to the lender, the actual terms of the payment flexibility will depend on the terms set out by the lender. Some examples of flexible payment term are:


Many financial institutions will allow overpayments (which will reduce the overall length of the mortgage term). In addition, some mortgages include options to allow:

If you take advantage of underpaying or taking payment holidays you should note that interest will continue to accrue. Higher repayments might be required later in the mortgage term to cover the payment holiday, alternatively the length of the mortgage term could increase.


Offset Mortgage: This type of flexible mortgage enables the borrower to offset the amount held in a current account or a savings account (with the lender) against the outstanding mortgage amount. The amount of interest owing is calculated daily, based on the difference between the outstanding mortgage balance and the sum held in the linked account. For example, if your mortgage is £100,000 and it is offset against a savings account containing £10,000 then the interest is only calculated on £90,000.


Current Account Mortgage: This type of flexible mortgage product is a combined current account and mortgage account. Interest is calculated on the daily balance, so the overall amount of interest owed will depend on the amounts of money paid into the account and the amounts withdrawn.




Disadvantages of Remortgaging


Despite many of the obvious benefits of remortgaging, outlined above there are potentially some significant drawbacks. It is essential that proper research is done into the full terms and conditions of each financial product particularly in terms of costs and penalties.

In particular, look out for the following possible drawbacks:


Early redemption penalties: If you want to pay your mortgage loan off in full and the existing loan is a fixed rate, discounted rate or capped rate mortgage, then an early redemption charge, equivalent to several months' interest, is likely to be applied. You should also be aware that early redemption penalties may still apply to some mortgages whether or not they are still within the initial offer period.

It is often advantageous for the borrower to wait until the early redemption penalty period has expired, before considering a remortgage.


Don't ignore the remortgage details: Many lenders offer competitive rates and discounts to encourage property owners to choose their remortgage products because competition between financial institutions for customers is intense. There are usually a lot of conditions associated with any given product so be sure to ask the following questions:


Debt Consolidation: Remortgaging your property may be an attractive option to raise funds for debt consolidation, it is a relatively cheap way of borrowing money. In the longer term however the interest payments may be higher. You would also run the risk of losing your home if you were not able to meet the payments.




Remortgaging Procedures


Remortgaging your property is cheaper and simpler than obtaining the initial mortgage. The application for a remortgage is similar to the one for an initial mortgage.

Once the remortgage has been agreed in principle the lender will still require a valuation and depending on the value of the property and the amount required from the remortgage you may not need a formal valuation. You will probably only need a basic valuation even if you change lender because you are already resident in the property and know the current condition of it.

Any lender will usually require similar types of financial proof as they would for a mortgage before an offer is made:

And if you are self-employed;

The alternative is a self-certification mortgage.

In addition if you are changing lenders, a solicitor or licensed conveyancer will be needed to carry out local searches and confirms the title details of the property. When the funds are available for the remortgage the solicitor pays the old mortgage and informs the Land Registry of the new arrangement for the property.


Remortgaging Costs
There are inevitably some costs that may be applicable:

The main cost you will avoid by remortgaging is Stamp Duty, you already own the property.

The lower the value of the remortgage the less lenders are likely to be available to choose from, many lenders will not remortgage for a sum of less than £25,000.




Poor Credit Remortgage


Poor credit or refused credit mortgages are available to people with a bad credit history. The lenders' criteria vary but are generally stricter than for people with a good credit history. There are also fewer lenders prepared to agree to a mortgage or remortgage for in the adverse credit market, the ones that do are usually specialist lenders.

Examples of situations that are considered to be poor credit history are when people are in arrears with their existing mortgage payments or have CCJs against them.


Fast Track Remortgages


A fast track remortgage may be essential in some circumstances, if for example you are struggling to meet existing mortgage commitments and a remortgage will provide the necessary funds to alleviate this situation then a fast track remortgage may well mean that you avoid your home being repossessed. Some lenders are more relaxed about the credit history requirements than others and will not necessarily decline a mortgage application based on one or two missed payments if there is good reason.


Poor Credit Remortgage Lenders


The rates of interest on a remortgage from a specialist poor credit lender are usually higher than those of standard lenders so you should be fully aware of the costs and terms of business associated with these types of remortgage. If you fail to make payments on the loan then repossession is the most likely result.



Remortgage Online Quote


Many lenders have a remortgage quote form on their websites, this is a good initial step to researching potential mortgage products and costs.


The Traditional Way


Many people prefer the traditional approach of arranging a meeting with someone in the local branch of a bank or building society or with a broker. Many more people are now attracted by the speed and convenience of using the internet to access the information.


No Fuss, Obligation or Cost


You can fill in as many Remortgage quotes as you like, requesting information on the various mortgage products available best suited to your circumstances. There is no fuss, cost or obligation when it comes to asking for free Remortgage quote online.


You can fill in as many Remortgage quotes as you like, requesting information on the various mortgage products available best suited to your circumstances. There is no fuss, cost or obligation when it comes to asking for free Remortgage quote online.


Online Mortgage Industry


The online mortgage industry is booming as more and more people feel secure conducting searches and mortgage inquires online. The internet offers a fast “no nonsense” modern approach to providing fast solutions at the click of a button.




Buy to let mortgages are not typically regulated by the FSA


Commercial Mortgages and Buy to let mortgages are not typically regulated by the FSA


We do not charge a fee for mortgage advice. A fee based option is available of typically 2% of the mortgage amount.
For example on a loan of £25,000 the fee would be £500

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