Remortgaging could save you money and it pays to get prepared. In this guide we'll take you through everything you need to know. From what it is, how to work out if it could save you money and when is the best time for you to do it.
What exactly is ‘remortgaging’?
Remortgaging can sound ominous, though it’s simply switching to a new mortgage deal. Just think of it in the same way as when you switch energy providers.
Is it worth remortgaging?
If you switch to a lower mortgage rate, it can save you money each month. In fact, the last FCA market study review[i] estimates that around 800,000 homeowners could be better off. On average, they could save £1,000 per year in the first two years (on a new 2 year introductory deal) and around £100 per year for the rest of the term of their mortgage. That’s because, after the initial deal period, often between two and five years, the rate moves to the lenders Standard Variable Rate (SVR). This is usually higher than a new deal you could get from remortgaging.
You should be able to find the current SVR of your existing mortgage provider on their website.
What's Loan to Value?
LTV or loan-to-value is the amount you will be borrowing on your mortgage as a percentage of the value of your property.
Remortgage of £112,500 ÷ Property value of £150,000 (x 100)
= Loan to Value of 75%.
Check if you could save money
Find out how much your property is worth
When considering remortgaging it is important to have an idea of the current value of your property. This is because your loan-to-value is likely to have changed since you took out your current mortgage and this will affect the interest rates you are able to get from your remortgage.
You can get an estimated valuation of your property online. These tools use calculations which take into account your property’s features, the area and current market conditions and will give you an idea of what your property is worth but they are only estimates so be aware that your new lender’s valuation may differ.
Find out how much you still owe on your mortgage
This will be the amount that you would be borrowing from the new lender on your remortgage. Ask your current lender for a redemption statement. If you decide to borrow more at this point to ‘release equity’ (to pay for things like home improvements) add this amount on to the redemption figure.
Calculate your ‘new’ LTV and compare products
There are tools available online that will help you calculate your LTV. Our repayment calculator, for example, will give you an idea of what your repayments could be and tell you what your LTV is.
Have a look at what interest rates you could get and compare with your current provider’s SVR – if they’re lower it might mean you could save money.
Consider fees and charges
Since remortgaging means switching mortgage providers, you will need to pay for the administrative costs, just like you’re likely to have done when you took out your current mortgage.
Product fee or arrangement fee - This is the cost of setting up or ‘arranging’ your mortgage. The product fee can either be paid on application or added to your loan (though adding to your loan will increase the overall cost of your mortgage since you will pay interest on it). Some remortgage products are offered with no product fees to pay, so it may be worth considering one of those.
Valuation fee – The valuation report is used by your new lender to calculate what your new LTV is so you can be offered an appropriate product. Some remortgage products offer free valuation as part of the product so it may be worth considering one of those.
Legal fees – you will have to appoint a legal adviser to carry out searches and transfer mortgage money between lenders (and to you in case of ‘equity release’ additional borrowing). Some remortgage products offer free legal fees as part of the product so it may be worth considering one of those.
Early Repayment Charge (ERC) – you may need to pay an ERC if you decide to repay your mortgage early or switch to a new deal before your current deal ends. This is normally a percentage of the outstanding mortgage balance.
Exit fee or redemption fee – You may be charged an exit fee by your current lender when you leave. This fee is to cover the administrative costs of closing your existing mortgage account.
When should I apply?
It will, of course, take time to decide what is right for you and to complete and process your application; so start thinking about remortgaging about six months prior to the end of your current deal. Here, at Yorkshire Building Society, your mortgage offer will be valid for six months so if you apply early you can be safe in the knowledge that you’ve got your mortgage offer and, therefore interest rate, in place and ready to transfer at the end of your mortgage deal (without going on to SVR or leaving your deal too early and being subject to early repayment charges).
Even if you don’t take advantage of the full six months, it is recommended that you apply for your remortgage product at least two months prior to the end of your current deal. That way you should still have time to be able to switch over at the end of your current deal.