Remortgage step by step: how to switch your mortgage

Remortgaging may help reduce your mortgage costs, but any savings depend on the available terms, fees, early repayment charges and your circumstances. Compare the total cost of switching with staying on your current deal or taking a new deal with your existing lender. This guide explains the remortgage process step by step.

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 aim is usually to reduce your interest rate or monthly payments.

Many borrowers review remortgaging when their current deal (for example a 2- or 5-year fixed rate) is coming to an end, because an early repayment charge may apply while you are still tied into a deal. The date your current rate period finishes is shown in your mortgage documents.

How does a remortgage work?

In a remortgage, 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 process is a little simpler, as there is no estate agent to contact and no price to negotiate. A solicitor or conveyancer still handles the legal work when you move to a new lender, and some deals include free standard legal work.

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?

Here is an illustrative 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 initial 2-year deal has ended, so no early repayment charge applies.

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

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. This may give them access to a wider range of deals, subject to lender criteria. It is exactly as if they were now buying a house with a deposit of £26,089, which is slightly higher than 10%.

Now suppose that, for a £250,000 home with a 10% deposit, they could get a new 2-year deal at a hypothetical rate of 4.53% (an illustrative figure, not a current market rate). With the repayments spread over 22 years, Adam and Maria’s monthly payment would fall to £1,341. In this illustration, that would be about £520 a month less, before any fees.

How much will I spend on remortgage?

Remortgage costs depend on the lender, mortgage product and your individual circumstances. They may include a product fee, legal costs, a property valuation fee and, where applicable, a mortgage advice fee. Not all fees apply to every transaction. At Extend Finance, any applicable mortgage advice fee is disclosed to the customer before they decide to proceed with our service.

There may also 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. Where the lender charges one, the fee depends on the lender and the property’s value (often a few hundred pounds for a typical home, and more for higher-value properties), and many remortgage deals include a free standard valuation. Other possible costs include a product or arrangement fee, legal fees (sometimes included in the deal) and an exit or redemption administration fee from your current lender. If you add a fee to the loan, interest is charged on it, so the total you repay can be higher.

Had Adam and Maria switched while still inside their initial deal, an early repayment charge of, say, 5% of the balance (around £11,000) could have applied. Because they would still have been on their lower initial rate, the monthly saving from switching would have been much smaller, so the charge could have outweighed the benefit.

Early repayment charges usually apply during an initial deal period and are often a percentage of the balance. You can check yours in your mortgage offer or in a redemption statement from your lender. 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 mortgage broker

Chances are that your lender or mortgage broker will try to contact you to offer you a new mortgage deal. A new deal with your current lender may suit you, but comparing it with the wider market can show whether a better option exists.

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 purchase mortgage, a new lender must check that you can afford the repayments before it lends. If the loan you want is not affordable, you may need to stay with your current lender (switching to a new deal with them usually needs no full affordability check if you don’t borrow more) or change the loan, for example the amount or the term.

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 product fee. 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 an Agreement in Principle. This is an indication of how much the lender may be willing to lend; it is not a guarantee or a mortgage offer.

Contact the conveyancer

When you remortgage to a new lender, a solicitor or conveyancer normally handles the legal work, including repaying your previous mortgage. Some deals include free standard legal work. If you switch to a new deal with your existing lender (a product transfer), there is usually no legal work.

Apply for a mortgage

Once you have an Agreement in Principle, you can submit a full mortgage application. When the lender’s underwriters are satisfied with the application, the lender issues a formal mortgage offer. Your existing mortgage is then repaid at completion, usually by your solicitor or conveyancer, and the remortgage is complete. Your new deal then starts.