Questions to ask when remortgaging
What is a remortgage?
Remortgaging means switching your mortgage from your current lender to a new one, while still living in the same home. You've probably done the same with your gas and electricity provider and moved to a different energy company.
The most common reason to think about remortgaging is to cut the cost of your mortgage. Moving to a new mortgage with a lower interest rate can save you thousands of pounds over the life of your mortgage. So it is definitely something worth thinking about.
You can also remortgage to fix your mortgage costs for a few years or to take money out of your house.
You don't need to worry how to go about it - our mortgage advisers can explain the pros and cons of remortgaging, find you a good remortgage deal and also take care of the technicalities and paperwork for you.
Is it a good time to remortgage?
There are good times and bad times to remortgage.
You should stick with your current lender if:
- you've got a good mortgage deal and there is nothing better available
- you're tied in to a deal and would have to pay a penalty (an early repayment charge or ERC) if you switched - unless the overall savings made it worth paying the early repayment charge. Check our early repayment charges calculator or our advisers can do the sums for you. If it isn't worth switching now, you should make a note to look again at remortgaging when you've only three months left on your current deal.
It can be a good time to remortgage if:
- you're at the end of your existing mortgage deal
- you've had the mortgage a long time and interest rates have come down
- you want to take some money out of the property - called equity release.
Are there fees involved when remortgaging?
Yes. The fees will be similar to the ones you paid when you started your current mortgage:
- arrangement fee to join a new lender
- exit fee to leave your current lender
- survey and legal fees
- early repayment charge (ERC) - a penalty for leaving a mortgage deal before the end of the agreed period.
You will find more details about these fees in our guide How much does it cost to remortgage?
Some remortgage deals have low or even no set up costs and there are plenty to choose from.
Should I consolidate my debts?
It is easy to run up a lot of debts in various places - an overdraft, credit cards, personal loans - all at a higher interest rate than your mortgage. The idea of consolidating debts is to put all your debts in one place with the lowest rate of interest. You can remortgage to increase the size of your mortgage and use the extra money to repay your other debts.
Don't rush in to it though because there are downsides:
- although the interest rate is lower, you'll be paying off your remortgage for many years to come, including the amount you have added for your other loans. It can help you out of today's difficulties but you will pay more in the long run.
- your remortgage is secured against your property so, if you fail to keep up the remortgage payments, you could be repossessed and lose your home.
Always take advice before consolidating your debts. Our advisers can talk it through with you and there is more information in our other remortgage guides.
How much equity do I need in my property?
The equity in your house is the difference between the value of your home and the size of your mortgage. If your property is worth £200,000 and you have a £150,000 mortgage, your equity is £50,000 or 25%.
When you first buy a home, you might be able to afford only a 5% deposit which means you have 5% equity in your home.
This is the loan to value ratio or LTV. Having only 5% equity is a high LTV and you will be charged a higher mortgage rate.
Anyone who can put down a 25% deposit, a moderate LTV, will have a much better choice of competitive mortgage rates.
So it might be worth waiting to remortgage until you have built up more equity in your home for the advantage of lower interest rates.
Our advisers can help you with the sums.
Do I have a good credit history?
The information on your credit file will influence whether you get a mortgage or not. Lenders look at your credit history and give you a credit score. A high score means you are a good credit risk. With a low score you have fewer mortgage options and pay more.
Our advisers know which lenders are more likely to offer mortgages to people with low credit scores and can advise you on the best deal.
It's worth finding out what your credit score is, even if you know you are creditworthy. You can find your credit rating from our free credit check service.
What type of mortgage do I want?
Mortgages fall into two broad categories: fixed rate and variable rate. The interest rate you pay depends on the type of mortgage you choose.
Fixed rate mortgages have a set interest rate and last for a fixed period of time - typically 2, 3 or 5 years. Some allow you to fix for longer, perhaps 10 years. You are tied in for this length of time and will have to pay an early repayment charge if you come out earlier. See our early repayment charges calculator.
In case you decide to move house in the middle of a fixed period, look for a portable remortgage - then you should be able to take the mortgage with you to your new home.
The advantage of a fixed rate mortgage is that you know exactly how much it will cost for the whole period of the loan. The interest rate will not change, whatever happens to rates on other mortgages, whether they go up or go down. This is helpful with budgeting for years at a time.
As the name suggests, the interest charged on variable rate remortgages goes up and down as interest rates change. You'll not know for certain how much your mortgage will cost in the coming years but, at least to start with, it should cost less than a fixed rate loan.
See our calculator what will happen if rates change?
The rate will be linked to your lender's standard variable rate (SVR), or it can be a tracker mortgage linked to the Bank of England bank rate (known as base rate).
How do I remortgage my home?
You can read our guides on remortgaging here. You can also phone us. Our advisers are happy to answer any questions you have, explain how remortgaging works and talk you through your options.
There is no charge for our service. It is fee free.