To remortgage a property is to take out a new mortgage to replace your current mortgage before the current mortgage has been fully paid off.  Many people have found that they can make really substantial savings, worth thousands of pounds per year by taking out a remortgage with a lower interest rate than their existing mortgage.

Who might want to take out a remortgage for a property?

• 
  Moving to a bigger house Some mortgages are portable and can be taken over to a new property you buy.  Usually however if you move to a bigger house you will want a larger mortgage so you will need to shop around for better remortgage deals than what you have at the moment.
• You want to increase your payments and pay the mortgage off early Say you have had a pay increase or have inherited some money.  Getting a remortgage may be the best way to set this up.
• You are coming to the end of a period of fixed interest rates on your current mortgage.  Many people take out mortgages where the interest rate is fixed for the first 2 or 3 years.  When that period is coming to an end it is often a good time to explore the best remortgage deals.
• Consolidating other debts  Many people have bank loans or credit card debts with high rates of interest.  For some it is sensible to pay off all those loans by getting a larger remortgage which can then be paid off at much lower rates of interest.  The downside of taking out a remortgage including other consolidated debts is that although the interest rates may be lower, the length of time for paying off those debts is likely to be extended.  Paying off a loan at 9% interest over 10 years is likely to be less expensive than paying off a remortgage at 3.5% over 20 years.  Short term gain may mean a higher overall cost.

When a remortage is not possible or not a good idea

• Early Redemption Charges (ERC)  If you are on a fixed interest mortgage you may be charged a very expensive fee if you take out a remortgage before the fixed term has expired.  Some lenders will charge an ERC even if you pay off your original mortgage after the fixed term has expired.
• Owning less than 25% of the property’s value  Since the credit crunch it has become much more difficult to get a mortgage or remortgage if your equity in the property is less than 25%.   Many lenders will only offer a loan where the Loan To Value (LTV) – the proportion of the loan to the value of the house is 75% or less.  The lowest interest rates may only be available when the LTV is 60 % or less.  Where there has been a substantial fall in property prices some borrowers have found their equity in the property has fallen and  that  the LRV has risen well above 75%.  In these cases borrowers are unlikely to get a remortgage.
• Borrowers with poor credit ratings  Those who have bad credit ratings may not be able to get a remortgage and may have to stay with their current mortgage provider.
• Borrowers with very small mortgages  Many lenders are not interested in providing mortgages of less than £50,000.  Those whose mortgages are almost completely paid off are unlikely to get a remortgage.
• Already on a good Standard Variable Rate (SVR)  Some borrowers opt to pay the SVR from the start while others automatically switch to SVR on the expiry of their fixed interest term.  In recent years with interest rates very low it may be that your current lender offers a very competitive SVR so a remortgage deal may not be worth the expense and hassle of getting a new mortgage.

Types of mortgages

To see some of the types of mortgages which are available for remortgage deals take a look at the separate article on ‘Mortgage Rates in the UK’ on this website

Costs fees and charges

Shopping around or getting a mortgage broker to do the job for you may get you a remortgage deal which provides for a much better rate of interest and therefore much lower monthly payments.  However there will be significant fees and charges to pay on many remortgage deals and these have to be factored into the calculations on how much you have to pay.  These fees include:

• Early Repayment Charge (ERC) See above.
• Mortgage exit administration fee  These are administrative and staffing fees which your existing lender can charge for bringing your existing mortgage to an end.
• Arrangement fees An administration fee charged by the new lender which can range from £500 to 1.5% or 2% of the mortgage value which could be thousands of pounds.  These fees can often be added to the total remortgage amount which may seem a good idea at the time but which will mean you are paying interest on this fee for years to come.

This arrangement is good for the lenders as their base interest rates look good on price comparison best-buy sites but prices actually are higher than the interest rate tables show because of these charges.  Borrowers wanting the best remortgage deal should not just look at the interest rates on offer but should factor in these extra charges when using a remortgage calculator to work out what the actual monthly payments are likely to be.

To see how a (re)mortgage calculator works see the separate article on ‘Mortgage Calculator’ on this website.

• Reservation fee  Some lenders charge a reservation fee when setting up for you a fixed interest mortgage.
• Valuation fees  All lenders will get a surveyor to value the property.  A borrower seeking a remortgage will have to pay for this.
• Legal fees Any remortgage will mean using a solicitor which a borrower will have to pay for.

Getting advice – mortgage brokers

Many people looking for a remortgage use a mortgage broker to get the best remortgage deal.  Most people do not have the time or the expertise to find the best deals.  Some lenders will also only offer mortgages through mortgage brokers.

Mortgage brokers will charge a commission for their services, usually 0.3% to 0.5% of the mortgage amount.  Brokers may also charge a fee for their services as well.  They shouldn’t charge more than 1.25% of the mortgage value.  Take this into account when choosing a broker.

Summary

Any decision on whether to get a remortgage can only be made after two issues have been examined:

What are the anticipated costs going to be if you stay with your current mortgage?

What are the costs, including fees and charges, going to be if you get a remortgage?

Don’t just look at the headline interest rates on offer.  Get proper advice before you commit yourself.

This document does not constitute financial advice under the Financial Services and Markets Act 2000. If you require such advice, you should seek appropriate professional advice.