What is remortgaging and how does it work?

What does remortgaging mean?

Remortgaging refers to switching to a new mortgage with a different lender on the same property. It doesn’t involve buying or selling a property, but affordability and legal checks still apply. When remortgaging, the mortgage remains tied to the same property, but elements such as the interest rate, the length of the deal or the overall mortgage term may change.

Homeowners remortgage for a range of reasons, including changes to monthly payments, interest rate type or borrowing levels.

How does remortgaging work?

Remortgaging involves applying for a new mortgage with a different lender. The application process is similar to that of a first mortgage, typically including identity checks, a credit assessment and a property valuation.

If the application is approved, the new mortgage is used to repay the existing loan. Legal work such as identity and anti-money laundering checks is usually required, though some lenders include it in the remortgaging process. Timescales for remortgaging can vary depending on the lender, the application details and whether any issues take place during valuation or legal checks.

Is remortgaging suitable for you?

Homeowners may review their mortgage arrangements at different points. Whether remortgaging is suitable depends on individual circumstances, eligibility criteria and costs. You may want to remortgage:

• When an existing mortgage deal is coming to an end

• When alternative interest rates become available

• When the amount of equity in a property has changed

When your current deal ends

Tracker and fixed-rate mortgage deals usually run for a set period, typically between two and five years. When the deal ends, the mortgage typically moves onto the lender’s standard variable rate (SVR). This rate is often higher than introductory rates, which may affect monthly repayments.

Some homeowners review alternative mortgage deals before their current deal ends to understand what options may be available.

When a different rate becomes available

Changing a mortgage during an existing deal period can result in Early Repayment Charges (ERCs). These are usually calculated as a percentage of the outstanding mortgage balance and may be accompanied by an exit fee.

In some cases, the overall cost of switching may be lower over time, although this depends on factors such as fees, interest rates and the remaining term of the mortgage.

It may also be a good idea to speak with a mortgage broker, as they can often advise on the best option for your circumstances.

When your equity has increased

If a property’s value increases or the outstanding mortgage balance reduces, the loan-to-value (LTV) ratio may decrease. Lower LTV ratios can affect the range of mortgage products a lender is willing to offer.

Property values can rise or fall, and lenders typically carry out valuations as part of the remortgaging process.

When interest rates change

Changes in interest rates can affect some mortgage types more directly than others. Tracker and variable-rate mortgages usually change in line with the base rate, while fixed-rate mortgages remain at the agreed rate for the duration of the fixed period.

Before remortgaging, it can be useful to understand how your current deal responds to interest rate changes and whether alternative products operate differently.

Remortgaging vs product transfers

An alternative to remortgaging is a product transfer. Remortgaging involves taking out a new mortgage with a different lender, while a product transfer means moving onto a new deal with an existing lender.

Product transfers may complete more quickly because there is no change in the lender. However, the range of available products may be more limited compared with remortgaging.

Compare your remortgaging options

Mortgage products differ in structure, duration and cost. Interest rates are one factor, but fees, incentives and charges can also affect the overall cost. Common mortgage types include:

• Fixed-rate mortgages for a set period

• Tracker mortgages linked to a base rate

• Variable-rate mortgages

Comparing products may clarify how different mortgages operate. Alternatively, if you’re looking to remain with your current lender, you might decide to opt for a product transfer rather than remortgaging.

What to consider before remortgaging

Factors commonly taken into account before remortgaging include:

• The end date of the current mortgage deal

• Whether Early Repayment Charges (ERCs) apply

• Estimated property value

• Current loan-to-value (LTV) ratio

• Mortgage products available based on eligibility

Expert insight: what homeowners often overlook

Our mortgage expert Terry Higgins discussed what homeowners often overlook in the remortgaging process:

‘One aspect that can be overlooked is how long the remortgaging process takes. Product transfers with an existing lender may complete more quickly, while switching lenders typically involves additional checks, valuations and legal work, which can extend timescales.

‘Another consideration is focusing solely on interest rates. Fees and incentives can also affect the overall cost, so reviewing the full terms of a mortgage offer can provide a more complete comparison.’

Explore our wide range of brand-new homes across the UK. These include homes for first time buyers and growing families.

We also have plenty of offers to help you move, so make sure to check the terms and conditions to see if you’re eligible. Call our Sales Advisers to learn more.

Disclaimer: This article is for general informational purposes only and does not constitute mortgage advice. We would always recommend that advice is taken from a regulated mortgage adviser regarding your specific circumstances.