Remortgage is a common-enough word to encounter when you are reading about home loans and how to get them. A mortgage is a loan that helps you get your own property. A remortgage, then, is a loan that replaces the initial one you had – usually offering a better deal in the process.
Here, we answer some of the common queries people have about these loans. The information may help you decide whether the time has come to look around for a better loan than the one you have now.
Why would you remortgage your house?
People have lots of reasons for doing this. Sometimes, it can be as simple as switching to a cheaper deal. A new deal that saves you £50 a month could make all the difference to your household budget. Similarly, some people will switch to a cheaper deal that allows them to overpay their loan each month. If you currently pay £500 a month for your loan and you spot a deal that gives you a £460 payment instead, it could be worth switching. You might change deals and keep up the £500 payment you were making previously. If so, your loan will reduce sooner and be cheaper than it would have been had you stuck with the original loan.
Remortgage: How to value house to find out what it is worth
This bit is easier than you might think. Since the lender you approach for the loan will want to know your property is worth enough for security, they will arrange for the valuation to take place. This may not mean a visit to view inside the property – it may simply mean someone will drive past to view the property from outside. Some valuers even assess property valuations online, using a myriad of information to assist them.
How to remortgage house if you have never done so before
Firstly, read up on the process, so you know what is involved. Many steps are akin to those you would have gone through when you originally took out your home advance. Your aim is to save money, so it makes sense to explore the market to find out what the average rates are for two-year, three-year, and five-year fixed deals now. These are constantly changing. The possible savings you could make would depend on the rate you are paying now and how long you have had that loan in place.
Approaching your existing lender is easier than going elsewhere; however, it doesn’t guarantee you will get the best deal. The remortgaging process is typically faster if you switch from one product to another with the same lender. This can take around four weeks to complete. If you move your loan to another lender, the process can take longer. The same applies if anything complicates your loan.
How to remortgage your house to save money every month
We’ve all heard of budgeting and how it can help us manage our money. Similarly, when funds are tight, it is natural to review your bills to see whether you can reduce them anywhere. Since your home loan is by far the biggest outgoing you will have, it makes sense to see if a cheaper deal might be available.
If you think this might be possible, start looking around for other deals to see what is available. Interest rates may have fallen since you agreed to your existing loan. That means there is a greater chance you will find a more affordable deal. If you are approaching the end of your term, you can seamlessly move to a new deal that will hopefully save you money. If you still have some way to go before you reach the end of your current fixed term, read the section below for advice on how you might be able to proceed.
If you are on a variable rate, chances are you can save by switching to a fixed rate deal with your existing lender. If not, an alternative lender might be able to provide a better deal to save you cash.
Can you remortgage on a fixed rate?
Many home loans are agreed on a fixed rate deal. This means you agree to hold onto that deal for several years in exchange for a fixed interest rate. If rates go up (or down), your interest rate on that product will remain the same. It insures you against future possible rises. Of course, the fixed rate is typically higher than a variable rate, although the latter can go up or down with little notice if interest rates change – particularly if they increase.
If you are on a fixed rate agreement with your lender, check the details to see whether you will pay a penalty for leaving the deal earlier than agreed. If so, that penalty could erase any gains you might make for switching deals.
How does remortgage release equity?
One phrase you should be aware of is loan-to-value. This is often seen as LTV, and it is expressed as a percentage. The loan amount will form the first figure, while the value of your property will form the second.
For instance, let’s suppose your current loan is worth £200,000. A current valuation determines your property is now worth £250,000. That means your LTV would be 80%, i.e. you have a loan worth 80% of the total value of the property.
When you bought your property, you may have done so with a 95% LTV deal. That means you put down 5% as a deposit and took out a loan for the remaining 95%. However, even if you have only had your home advance for a couple of years, the value of your property might have gone up. This holds true even if your mortgage hasn’t reduced in size.
That means your LTV may now be lower than it originally was. The lower the figure goes, the more likely it is you can get a better deal if you are intent on remortgaging your home. So, figure out your LTV first and go from there.
Of course, some people take out a loan that is larger than the amount they require. Let’s assume you got an advance of £150,000 to help you buy a home worth £165,000, meeting the remaining £15,000 by way of a deposit. Your loan may now amount to £148,000, but your home has increased in value to £190,000. That means you have £42,000 equity in your property. You might decide to switch lenders and get a new loan that releases £10,000 in equity from your home. You might use this for home improvements, for example. This is another element to consider if you are thinking about changing from your existing deal to a new one.