If you’re wondering, ‘what is a remortgage’ you’re in the right place. A remortgage is simply taking out a new mortgage to pay off your existing mortgage.
If you switch your mortgage to one with a lower interest rate you could save money on your monthly payments. Alternatively, you might remortgage to release equity in your home.
Most people remortgage when their fixed rate expires. This is because your interest rate, and therefore your payments, are likely to rise when your fixed rate ends and you are moved to your lender’s standard variable rate.
Reasons to remortgage
The most common reasons to remortgage are to:
- get a cheaper interest rate
- move to a new fixed rate
- release equity for home improvements or to pay off debts
- remove an ex-partner from a mortgage
- find a mortgage with more flexible terms
- change your mortgage to a buy-to-let if you plan rent out the property
How does remortgaging work?
Some mortgage products are designed explicitly for remortgages.
You need to apply for one of these deals in the same way you would apply for any other mortgage.
This means you need to:
- have a loan-to-value below the maximum stated for the mortgage deal
- pass the lender’s affordability assessment
- have a credit history acceptable to the lender
- pay any arrangement or valuation fees applicable
- own a property deemed by the lender to be suitable security for the mortgage
- usually, not be in mortgage arrears
It’s best to use a mortgage broker to find a great mortgage for your circumstances.
Remortgaging can take several months so it’s best to start looking for a new mortgage deal about six months before you want to change mortgages.
How can I save money by remortgaging?
You can save money by remortgaging if you can find a new mortgage that is cheaper than your existing one.
For example, if you had a £100,000 mortgage at 6% on an interest-only basis over 20 years, you’d pay £500 a month.
If you switched to a mortgage at 4%, you could reduce your payments to £333 a month.
However, you also need to take arrangement fees into account when comparing remortgage deals.
You can use our remortgage calculator to find out how much money you can save by remortgaging.
How can I remortgage to release equity?
If you have sufficient equity in your home, you could remortgage for a higher amount than you currently owe on your mortgage.
You have equity in your property if your home is worth more than your outstanding mortgage.
When the remortgage completes, your new lender will pay off your existing mortgage then usually pay the rest of the money into your bank account as cash.
Is a remortgage a good idea?
Most people will remortgage several times during the years they have a mortgage.
If you have a fixed rate mortgage you will pay a set rate of interest for a period of time, typically two or five years. When the fixed rate ends, you’ll normally be moved to your lender’s standard variable rate (SVR). This will normally be higher than fixed rates available on the market.
For this reason, most people remortgage when their fixed rate ends.
If you want to remortgage before the end of your fixed rate, you will normally have to pay early repayment charges (ERC). This fee can be expensive so it’s important to factor it into your calculations when working out whether a remortgage will save you money.
Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Individual savings may vary, your savings will depend on personal circumstances.
Think carefully before securing other debts against your property.
There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.
Last Updated: January 16th, 2023