Remortgage step by step

It’s safe to say that a remortgage is one of the best investments you can make in connection with your property. On the bright side, the probability of making a profit on a mortgage swap is very high, but the whole process can be a bit complicated, especially if you’ve never done it before. To embolden you to make the decision, we’ll go over step-by-step how a remortgage works.

What is a remortgage?

Remortgage is the process of swapping your existing mortgage for another one with better terms. In practice, it boils down to taking out a new mortgage with which you pay off the one you have been paying off so far. The idea behind remortgaging is to reduce interest rates and instalments by choosing the most competitive deal on the market.

In the vast majority of cases, a remortgage is worth opting for when your existing loan agreement is coming to an end. Usually, it is concluded for a period of up to 2 to 5 years, and you will certainly find information about this detail in the documents you have received from your broker as well as your bank.

How does remortgage work?

As we have already mentioned, remortgage consists of swapping the mortgage for another offer. Let us point out, however, that in this case, the borrower does not change the property. The opposite situation, i.e. staying with the same mortgage combined with the purchase of a new home, is known as mortgage porting.

From the bank’s perspective, a remortgage is basically the same as applying for a mortgage on a purchase. However, the whole procedure of applying for finance is a little simpler as you don’t have to deal with conveyancing, contacting estate agents or negotiating the price.

There is already a blog post on our blog that explains how remortgaging works - it’s well worth reading as you’ll find much more information about the factors that affect the viability of the mortgage switching process.

How much can I save in this way?

Let us use a relatively common example.

Maria and Adam took out a 25-year mortgage three years ago. The value of the property they were buying was £250,000 and the deposit paid was £12,500. For the first two years, the interest rate was 4.9%, but after that, it rose to 8.39%. Their current mortgage agreement provides for an early repayment fee - this is 5% of the outstanding capital.

In the case above, we should first look at the capital that Maria and Adam have repaid to date. This we have illustrated in the table below:

Year Remaining amount Interest rate Instalment amount 0 £237,500 4.9% £1,375.00 1 £232,526.80 4.9% £1,375.00 2 £227,304.36 8.39% £1,861.30 3 £223,911.08 8.39% £1,861.30

After 36 months, the mortgage balance had reached £223,911.08. From Adam and Maria’s perspective, this is very positive news - assuming the value of their home has not changed, the LTV ratio of their mortgage has fallen below the 90% level. In practice, they will therefore be able to count on accessing better offers from the banks. It is exactly as if they were now buying a house with a deposit of £26,089, which is slightly higher than 10%.

So let’s look at mortgage offers for a £250,000 home with a 10% deposit. At the time of writing this article, it is possible to get an interest rate of 4.53%, also for a 2-year term. With the repayments spread over 22 years, Adam and Mary’s mortgage instalment would fall to £1,348.00. That’s £513 a month less!

How much will I spend on remortgage?

It’s worth remembering that when you decide to remortgage, you have to factor in the cost. You will almost certainly pay between £300 and £500 if you choose to use an independent mortgage broker such as Extend Finance.

There will also almost always be what is known as a valuation fee, which is a fee for the valuation of the property that is the subject of the mortgage. Typically, this ranges from £200 to £500. The fee depends on the location of the property, its value and the bank you have chosen to work with.

In the example described earlier, Adam and Maria would also have had to pay an early repayment fee of around £11,000 and would also have exposed themselves to a potential new mortgage origination fee. In total, the fees Adam and Maria could have incurred at the remortgage stage would have exceeded £12,000. This means that their investment would only have paid off after around two years.

In many cases, however, early repayment charges are much lower and fall within the £2,000 range, but you may have to pay higher instalments for a set period of time, for example, for the first 60 months of buying a property. It is always worth contacting your Extend Finance adviser to calculate whether remortgaging will be viable in your case.

Remortgage step by step

Let us now take a look at the process of a mortgage swap:

Contact a trusted credit broker

Chances are that your lender or mortgage broker will try to contact you to offer you a new mortgage deal. Typically, you will make a profit on such a remortgage, but there is a good chance that by undertaking an independent search, you will make even more.

Knowing that your current mortgage agreement is coming to an end, you should contact Extend Finance - we will get back to you within a day and together we will move on to the next step.

Assess your creditworthiness

As with a mortgage application for a house purchase, during remortgage we will also need to check whether your creditworthiness is sufficient to make regular repayments. If not, you will be forced to stay with your existing mortgage or change the parameters of the new product, for example by extending the repayment period.

Choose an offer that suits your needs

It does not always pay to choose the mortgage with the lowest instalment, just as it is not always worth deciding on a mortgage with no lending commission. Choosing financial products can be complicated and requires specialist knowledge. Otherwise, you may end up paying more than is absolutely necessary.

Usually, you will be presented with several offers and the final choice will depend on your plans for the future. For example, a key consideration may be whether you plan to move in the next few years.

Ask for an Agreement in Principle

The next step is to ask your new lender for a preliminary credit decision. This is a document confirming the bank’s willingness to finance your home. Once this has been obtained, you can start the process of terminating your existing mortgage agreement with peace of mind.

Contact the conveyancer

In the vast majority of cases, the formal side of transferring the mortgage as well as repaying the previous mortgage is handled by a solicitor (solicitor) or conveyancer. This is the person who will contact the bank on your behalf.

Apply for a mortgage

Once the bank has issued an agreement in principle, there is nothing to prevent you from applying for a mortgage. Once the analysts are satisfied with the application, your solicitor will take care of the repayment of the previous mortgage After this, the remortgage will be considered completed. The only thing left to do is to enjoy the lower instalment and count down the months to full financial freedo