27th January 2023

How does remortgaging work?

How does remortgaging work? This is a question that a lot of people may want to know the answer to, but without much experience in the area, it can be hard to know where to start.

First, you need to understand what remortgaging is. Put simply, remortgaging is when you move your mortgage on your existing property from one lender to another. It's worth noting that you need to have a mortgage set up already to be able to remortgage your property.

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How does remortgaging work?

But how does remortgaging work? Well, it's a bit like shopping around for deals on energy, clothes, cars and any other items. Essentially, you're comparing lenders to see which one can offer you the best deal.

However, most people don't realise they can actually remortgage with their current lender as well. If you decide to remortgage with a different one, the new lender will effectively pay off your old mortgage and your debt transfers over to them.

Why should I consider remortgaging my home?

Ordinarily, the main reason why someone considers remortgaging their home is to get a better deal and save money. Alternatively, some people may do it to protect themselves against rising interest rates. Let's take a look at the main reasons for remortgaging in more detail:

1. Your current deal is ending

A lot of mortgages that offer good rates are fairly short-term, generally only lasting around 2 to 5 years. This is the most common length of time for a fixed rate or discounted mortgage. If the time is up on your current mortgage deal and you don't do anything about it, you will automatically be put on a standard variable rate.

This is may be a lot higher than what you're paying now and may cause you some financial problems. To avoid this, you could start looking at remortgaging, which is best done four or five months before your existing mortgage deal is due to end.

2. You want a better rate

Fluctuating interest rates are another reason why some homeowners choose to remortgage. This works both ways - if interest rates have fallen since a homeowner took out their mortgage, they may wish to take advantage of this by accessing a cheaper deal.

Alternatively, they may be concerned about future rises and want to lock in today’s interest rates to protect themselves going forward.

The main thing to bear in mind here is early exit fees. When you take out a mortgage, may include a fee for leaving the contract early, which could be anywhere up to 5% of your loan. If you're considering remortgaging before your current deal is due to expire, you need to factor in the savings you will make and whether it's worth taking this hit.

3. Your home has increased in value

If there has been a significant rise in the value of your home, especially if this happened quickly, it might be that you are now in a lower loan-to-value band. This means you could qualify for even lower rates. With house prices increasing, this is something that could benefit a lot of people who already have mortgages in place.

4. Your lender won’t let you overpay

If, for any reason, you want to pay over your agreed amount and your mortgage lender won’t let you, it might be beneficial for you to remortgage. Whether you have received some inheritance or you have recently earned a pay rise, it can help to pay off as much as you can early on to avoid more interest.

However, if your current lender won't allow you to overpay, remortgaging may be necessary in order to increase your payments. When you do this, you will need to factor in any potential early repayment costs or exit fees, which could eat into how much you're saving by switching mortgages.

5. You want to borrow more money

On the other end of the spectrum, if you want to borrow more money against your existing mortgage and your lender has refused or is offering bad terms, then you might benefit from switching mortgage lenders. While most lenders will offer you more, they will likely want to know what you are using this money for.

Common reasons include needing money for home improvements or paying off other debts. The provider will usually ask for proof of this too, such as quotes from a builder if you are borrowing the money for home improvements.

Where to get help

Remortgaging can be a confusing process if it's not something you have had much experience with before. It's also something you need to be prepared for, in terms of knowing what to expect as well as financially. If you need further help, feel free to get in touch with our team for advice. You can also use our mortgage calculators, such as our affordability calculator, in the footer of our website.

At WIS Mortgages, we specialise in mortgage products for high earners, green mortgages, first-time buyer mortgages, Islamic mortgages, expat mortgages, contractor mortgages, SPV mortgages, buy-to-let mortgages, mortgage insurance and limited company mortgages. However, we also have an accountancy arm (WIS Accountancy) and an insurance branch (WIS Business Protection), so we can help you with all your wealth and pension concerns too. Please note that WIS Accountancy is not regulated by the FCA.

Make sure to get in touch with our friendly team today via our online form or by calling 020 3011 1986 to find out more about how we can help you.

Note: As a mortgage is secured against your home or property, it may be repossessed if you do not keep up with the mortgage repayments.

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