A remortgage is the same as any other mortgage Ė except youíre not buying a house
When you remortgage you still choose the rate youíll pay, repayment method and type of product from any lender in the market. However, contrary to what many believe, you donít have to change lenders. Your aim is to find a deal that improves on your existing mortgage.
Reasons for remortgaging vary. The main ones are to:
Save money: Remortgaging can significantly reduce your monthly outgoings.
Reduce the length of the loan: With extra money each month and more flexible products itís possible to overpay your mortgage loan and pay it off early without redemption penalties.
Release equity: By remortgaging for a sum that is greater than the amount needed to repay your mortgage, you can release money to buy a new car, make DIY improvements or invest in a second home.
Change product: If you get stuck with a standard rate or with a poorly performing endowment mortgage you can change product with all the options available to a first-time buyer.
Switch from an unsatisfactory lender: Thereís no need to stay with an unsatisfactory lender as switching from one to another has never been easier.
Increase flexibility: Remortgaging from a standard mortgage to a flexible one, current account mortgage (CAM) or offset product will allow you to under and overpay your mortgage and release equity without having to get permission from your lender.
Costs and penalties
The lender will not rely on your original survey when assessing the remortgage value of your house, so there will be a charge Ė as there would be for a normal mortgage. There will also be legal costs and possibly administration fees Ė although these arenít likely to be as high as with a totally new mortgage.
Many lenders offer remortgage packages that refund these costs on the completion of the deal, providing you use their recommended surveyors and solicitors.
However, you may face substantial costs if there are early repayment charges (ERCs) associated with your existing mortgage. If you are within an introductory offer period with a fixed, discounted or capped rate of interest, you will incur a penalty, which will usually be a set proportion of the loan. Some loans also have an overhang period after the introductory time Ė this could cost thousands.
However, itís always worth weighing up the savings you can make with a remortgage against the costs and penalties. It may be worth paying these for the benefit of the new loan, particularly if the redemption fee is small.
Although the process of remortgaging is similar to getting a normal mortgage, itís faster as youíre not buying a home. Depending on the lender, it should take around six weeks. If you need to remortgage fast, some lenders offer fast-track services that can complete in as little as a week but this does depend on your individual circumstances.
Itís also important to consider when you want to complete the deal. If you are remortgaging from a lender that charges interest to the end of the month, you should remortgage on the first of the month so the old and new mortgages donít overlap.
Choosing a product when remortgaging is just as important as the first time around. You need to consider your financial requirements and your circumstances. The product you choose will depend on factors such as the size of your outstanding loan, attitude to risk, income and what you think will happen to interest rates.
Need to know
Remortgaging is taking out a mortgage without buying a house
Reasons for doing so include saving money, reducing the length of your loan, releasing equity and switching from an unsatisfactory product
You may have to pay ERCs to switch from your existing mortgage
You have to pay valuation and legal fees, although they are not as high as when youíre buying a property
The process should take about six weeks
Information source: Mortgage Advisor & home buyer publication march 2006