From mastering rates to mortgage protection – here’s our advice for making the remortgaging process as smooth as possible.
It might feel like yet another chore, but remortgaging every few years (especially when your current fixed or variable rate deal comes to an end) is one of the fastest ways to save thousands of pounds.
So, what does remortgaging actually mean? A remortgage is where you take out a new mortgage on a property you already own – either to replace your existing mortgage, or to borrow money against your property.
Remortgaging should be straightforward if you have kept up to date with all your repayments and you are not moving home. Here, we share some helpful steps you need to know…
1. Get ahead of the game
Usually when you take out a mortgage, the initial rate will be for two, three or five years, but it can be for as long as 10 years if you’ve opted for a longer-term deal. If you do nothing, at the end of this term you’ll automatically move onto a higher rate known as a Standard Variable Rate or SVR. Some lenders call this higher reversionary rate something different such as their Standard Mortgage Rate or they might use other jargon.
In order to avoid paying this higher rate, which could add thousands of pounds a year to the cost of your mortgage, you should arrange your remortgage before the fixed term ends. Remortgaging simply means to switch onto a new deal with another bank or building society, or onto a new one with your current provider.
It’s important that you don’t actually transfer onto a new deal until your current deal ends or you could be hit with a hefty penalty known as an Early Repayment Charge (ERC). Often your lender will write to you before your current deal finishes and offer you a new rate.
2. Think about your motivations for remortgaging
“Besides your current deal coming to an end, you may want to borrow extra money to carry out renovations or extend your property at the same time as switching,” says Gary Das, an independent broker at Active Mortgage. “But in order to do this, you will need to be able to prove to the lender that you’re able to afford repayments on a larger loan.
“If your situation has changed since you first bought your home, for example if your salary has fallen, if you have divorced or if you now have children, these factors can impact the amount you are able to borrow and therefore affect your remortgage eligibility.”
Another common reason to look for a new deal is if you want to buy a second property. Landlords, just like home owners, should also look to take advantage of the best mortgage deals by carrying out a buy-to-let remortgage when their current deals end.
3. Assess whether it’s worth switching early
You can switch deals whenever you want, providing that you meet the new lender’s criteria. It’s not normally a good idea to do so before your current deal comes to an end or you will end up paying an ERC. This is typically between 1 and 5% of your outstanding mortgage debt.
It is only worth switching early if remortgage rates have plummeted since you took out your original home loan and the savings you can make are greater than the penalty you will pay through the ERC. Find out whether or not you can make a saving by using a remortgage calculator such as this one on Money Saving Expert.
It’s helpful to shop around on price comparison websites like Money Supermarket or Money Facts. You could also use an independent broker to help you decide whether to stick with your current lender or switch to a new one. If you do choose to stay with your current lender but move onto a new rate, this is sometimes known as a ‘product transfer’.
4. Decide on a fixed rate or a variable rate mortgage
With the help of a broker or comparison site, you should look carefully at the costs of fixed rate mortgage versus variable rate mortgage deals. If you want to protect yourself against rising costs then a fixed rate will offer the most security. If you opt for a variable rate there is a risk that your rates could rise and your repayments go up.
5. Consider mortgage protection
When you remortgage, it’s also a good opportunity to check that you have the right mortgage protection in place to provide financial support to your family should anything happen to you or your partner.
Consider what appropriate level of cover you may need to ensure that your mortgage bills are paid if you or your partner were unable to work or if one or both of you died.
Your circumstances may have changed since you first bought your home, for example if you have moved jobs or if you have had children, so you might want to check that you’re fully protected from all the risks you might face, from illness to injury.
Did you know that Vitality offers Mortgage Protection Life Cover? Plus, the Vitality Mortgage Plan can provide cover against death, serious illness and inability to work due to injury or illness.