Remortgaging your mortgage

Choosing whether and when to remortgage is an important decision for a homeowner. A remortgage can help you review your existing arrangements, explore alternative products, raise additional borrowing where appropriate, or move onto a new deal before your current mortgage arrangement ends.

This guide explains how remortgaging works, the options available, the costs involved, and the key points to consider before making a decision.

At a glance

Why review your mortgage?

Many borrowers associate remortgaging with obtaining a lower rate. While this can be one reason for reviewing your mortgage, there are several others.

Common reasons include:

• An existing mortgage deal coming to an end.
• Reviewing affordability and monthly payments.
• Accessing additional borrowing.
• Funding home improvements.
• Consolidating eligible borrowing where appropriate.
• Reviewing the mortgage term and repayment strategy.
• Moving from a variable arrangement to a more predictable payment structure.
• Reviewing options following changes in personal circumstances.

A mortgage review provides an opportunity to reassess how well your existing arrangements continue to meet your needs.

When should you begin?

It is generally sensible to start reviewing your options several months before your current mortgage arrangement ends. The right time will depend on the existing lender, the products being considered and the application requirements.

Starting early can provide time to:

• Compare available products.
• Review product-transfer options.
• Consider alternative lenders.
• Gather supporting documents.
• Arrange a valuation where required.
• Complete legal work if necessary.

Leaving the review until the last minute may limit your choices and create unnecessary pressure.

Product transfer vs external remortgage

A mortgage review will often consider two possible routes.

Neither route is automatically better. It is sensible to compare the existing lender's options with suitable alternatives before deciding.

Reviewing loan-to-value

Loan-to-value, usually shortened to LTV, is the mortgage balance expressed as a percentage of the property value accepted by the lender.

For example, a £200,000 mortgage against a property valued at £250,000 represents an 80% LTV.

LTV can influence:

• Product availability.
• Interest rates.
• Lending criteria.
• The amount that may be borrowed.

As the mortgage balance reduces, or if the accepted property value increases, the LTV may improve. An updated valuation may therefore place the mortgage in a different LTV bracket. However, the lender will decide which property value it accepts.

An overpayment may also reduce the LTV, but check the mortgage terms and any early repayment charge before paying a lump sum.

Additional borrowing during a remortgage

A mortgage review can provide an opportunity to apply for additional borrowing.

Possible purposes include:

• Home improvements or renovations.
• An extension.
• Buying out another owner's interest, subject to legal advice.
• Debt consolidation where appropriate.
• Purchasing another property.
• Business purposes where permitted by the lender.
• Other significant expenditure.

Additional borrowing increases the amount secured against the property. It may increase the monthly payment, extend the repayment period and increase the total interest paid.

Debt consolidation can reduce the immediate monthly cost in some circumstances, but spreading short-term debts over a mortgage term may increase the total amount repaid. It also converts borrowing that may be unsecured into borrowing secured against the home. The risks, costs and alternatives should be considered carefully.

Reviewing the mortgage term

A remortgage is an opportunity to review the remaining term rather than automatically reproducing the existing arrangement.

Shortening the term

A shorter term will normally increase the monthly payment but reduce the period over which interest is charged. This can reduce the total interest paid and repay the mortgage sooner.

Extending the term

A longer term will normally reduce the monthly payment but increase the period over which interest is charged. This can increase the total interest paid and may extend borrowing into later life.

Maintaining the term

Keeping a similar remaining term may provide continuity, but it should still be checked against affordability, retirement plans and wider objectives.

There is no universally correct choice. The term should reflect your budget, future plans and the total cost of borrowing.

Looking beyond the interest rate

The headline rate is only one part of a mortgage product. Review the complete package and expected cost over the period that matters to you.

Product fees

Some products include an arrangement or product fee. A lower rate does not always create a lower overall cost once fees are considered. If a fee is added to the mortgage, interest will normally be charged on it.

Early repayment charges

An early repayment charge may apply if the existing mortgage is repaid or changed during a specified period. Check:

• Whether a charge applies.
• The amount or calculation method.
• The date on which it reduces or ends.
• Whether an overpayment allowance is available.

Paying an early repayment charge may sometimes be worth considering, but only after comparing the charge and all associated costs with the expected benefit of changing the mortgage.

Valuation and legal costs

A new lender may require a valuation and legal work. Some products include these services or provide an allowance, while others do not. Check the scope of any included service and whether additional work could create extra costs.

Incentives

Cashback, a free valuation or assisted legal work may reduce upfront costs, but an incentive does not automatically make a product the lowest-cost or most suitable option.

Flexibility

Consider overpayment allowances, portability, future borrowing needs and any restrictions that could matter during the product period.

Costs to consider

Reserving a product and keeping it under review

Depending on the lender and application stage, it may be possible to select or reserve a product before the existing deal ends. The available window, offer validity and ability to change products vary.

Before relying on a reserved product, confirm:

• How long the product or mortgage offer remains valid.
• Whether the product can be changed before completion.
• Whether a new product selection could affect fees, underwriting or timescales.
• What happens if completion is delayed.
• When the new mortgage is expected to start.

A reserved product is not always commitment-free. Do not cancel an existing application or allow an offer to expire without understanding the consequences.

If you are changing lender

An external remortgage may involve:

1. Reviewing affordability and lender criteria.
2. Submitting a full application and supporting evidence.
3. A credit assessment.
4. A lender valuation of the property.
5. Underwriting of the applicant, property and loan.
6. A formal mortgage offer.
7. Legal work to repay the existing lender and register the new mortgage.
8. Completion on the agreed date.

The process and evidence required depend on the lender and circumstances.

If your circumstances have changed

Tell your adviser about changes since the existing mortgage was arranged, including:

• Employment or income changes.
• New credit commitments.
• Changes to household expenditure or dependants.
• Maternity, parental leave or planned time away from work.
• Credit-history issues.
• Property alterations or changes of use.
• Plans to move home.
• Retirement plans.

A change in circumstances does not automatically prevent a remortgage, but it may affect affordability, lender choice or the route recommended.

Your remortgage checklist

Before reviewing your mortgage:

• Confirm the current deal end date.
• Check whether an early repayment charge applies and when it ends.
• Obtain a current mortgage balance.
• Identify the current repayment method and remaining term.
• Estimate the property's current value.
• Calculate an approximate loan-to-value.
• Review income, expenditure and credit commitments.
• Identify any changes in personal circumstances.
• Consider future plans, including moving, overpaying or repaying early.
• Decide whether additional borrowing is required.
• Compare the existing lender's options with suitable alternatives.
• Compare the total cost, not only the headline rate.
• Seek advice before cancelling or changing an existing arrangement.

Questions to ask before proceeding

• What do I want this review to achieve?
• What monthly payment remains comfortable?
• Do I want to repay the mortgage sooner or prioritise the monthly budget?
• Will I need additional borrowing?
• How important are flexibility and payment certainty?
• How long do I expect to remain in the property?
• Could I need to move, overpay or repay early?
• Have all fees and incentives been included in the comparison?
• Would the mortgage extend into retirement?
• What financial safety margin will remain after the change?

MMPE’s approach

Glossary

This guide is for informational purposes only and was accurate at the date of publication. Please seek personalised advice before making financial decisions.