A Guide To Remortgaging
You’ve probably heard about remortgaging but may not know what it truly means or be familiar with the processes that surround it. Many people assume that remortgaging their property isn’t a sensible solution for them or believe that they aren’t eligible for a remortgage. Remortgaging your home can be a great option, particularly if the reason for doing so is to fund home improvements, upgrades or to pay off existing debt. However, it isn’t the best option for everyone – this guide will help you decide whether remortgaging your home is right for you.
Defining the term “remortgage”
Although you’ll likely have some idea what the term means, mortgages can be confusing. Essentially, the process of re-mortgaging involves switching the mortgage provider when your current term ends. The remortgage must also be linked to the same property that you wish to switch providers on. This doesn’t mean that you need to wait until the value of the property is paid off before switching providers, just until the end of your current contract that you have with your existing provider. In short, you’ll be moving the existing loan to another mortgage provider. Many people choose to remortgage tactically every three or four years to obtain the best rates from lenders.
Although you may be able to switch to a different rate with your current lender, this isn’t considered remortgaging. This is considered a rate switch and the term re-mortgage is only applicable if you switch mortgage providers.
Benefits to remortgaging – saving money
Usually, people remortgage to save money. For this reason, many choose to remortgage just before they are committed to paying the standard variable rate (SVR) set out by their mortgage provider. Most providers will offer mortgages on introductory rates initially before applying the SVR to the loan. It’s important to recognise however that because of this trend, providers often contact borrowers before their current term ends to offer better rates. Sometimes, you’ll need to get into contact with them first though regarding staying or deciding to remortgage, but this depends on the provider.
Depending on the offers that your current provider puts forward, you may still be better off remortgaging. However, there are several factors that you should consider before going ahead and committing to this decision. First, you should take into account the costs that may be associated with remortgaging and find out whether this is the best solution for you. Re-mortgaging or switching rates with your current provider can both come with their benefits and mean that you could lower your monthly payment or reduce the length of your loan. This aside, you should discuss the options with a mortgage broker such as Orchard Mortgage Solutions before making your final decision.
Benefits to remortgaging – debt consolidation
If you have existing debt or you have incurred debt from different sources since taking out your mortgage, a remortgage could be a good way to consolidate these. Although this isn’t a magical way of wiping your other debts out, it can make it easier to manage them. Remortgaging with debt consolidation in mind will often mean paying back a larger monthly mortgage payment and depending on the interest rates associated with your debts, could also mean that you’ll end up paying more overall. Regardless of this fact, it can sometimes be much simpler to manage your finances in this manner by combining them into one simple monthly payment. To remortgage for a higher amount, you will need to release some equity from your property in order to obtain the amount needed to pay off your debts to your different credit providers. This can be a complicated process and it’s usually a good idea to consult a mortgage broker before doing so.
Using remortgaging to fund purchases or cover additional expenses
Some people choose to remortgage their home to cover big expenses such as weddings, university fees, vehicles or home improvements. Remortgaging can be an investment as such when you are doing so to cover home improvements or other upgrades that may add value to your home. It’s also sometimes a better solution for many than taking out separate loans to cover large expenses or purchases and can also mean that you’ll end up paying less overall in terms of interest.
Some people use remortgaging as a solution to creating their ideal home. Moving house is a very stressful and expensive experience, so creating the home that you want from your existing home can be a good solution. If your property has risen in value, releasing some equity and remortgaging can allow you to extend your property, adding additional facilities like bathrooms, or extra living space.
When am I able to remortgage?
After your initial introductory rate ends and before the SVR is applied to your mortgage, you will be able to consider remortgaging. You can begin to organise your remortgage up to 6 months in advance of your existing mortgage term ending. Starting the organisation in advance is recommended if you want the process to run smoothly and incur fewer costs. The process can be lengthy so it’s best to have enough time between your current term ending and your new one starting with another provider. It can take around 3 or 4 weeks for a new mortgage offer to process, additionally, the legal side can also add another 2 or 3 weeks. However, most remortgages are processed and ready to go in around 4 to 6 weeks on average.
Breaking down the process
The remortgaging process has several stages and can be complicated, here’s a short overview.
- First, you will need to obtain your redemption statement from your current provider that details the remaining amount left to pay on your loan.
- Then, your mortgage advisor will compare different lenders on the market to find the best rate for you and informs you of these.
- Once you decide to go ahead and choose your new provider, your advisor will then apply to the new provider on your behalf to secure a Decision in Principle (DIP). If you are given a DIP you will then need to provide information in regards to your identity and finances to your mortgage advisor in order for them to submit these to the new provider.
- You’ll then be asked to arrange a valuation of your property before your solicitor can go ahead and take care of the legal processes. Once your application has been approved by your new lender you will arrange a completion date with your solicitor which is when they will facilitate funds from your existing lender being paid to your new lender and any remaining money after clearing the balance will be paid to you.
As you’ve probably noticed in this guide, the process of remortgaging can be fairly complicated but also worthwhile for many people. If you require any advice about remortgaging, our team at Orchard Mortgage Solutions are happy to answer any questions you may have.