What Is Remortgaging and How Does It Work?
Remortgaging means replacing your existing mortgage with a new mortgage deal. In many cases this involves moving from your current lender to another lender, although homeowners can also stay with their existing lender and switch to a new deal through what is usually called a product transfer.
People remortgage for different reasons. Your current fixed or tracker deal may be coming to an end, you may want to reduce your monthly payments, release some of the equity in your home, change the structure of the mortgage or simply see whether a better deal is now available.
The important point is that remortgaging is a financial decision rather than simply an administrative exercise. The interest rate matters, but so do fees, early repayment charges, loan-to-value, affordability and what you expect to do with the property over the next few years.
Why do people remortgage?
The most common reason for remortgaging is that an existing mortgage deal is approaching its end. If you do nothing when a fixed or introductory deal finishes, you will usually move onto your lender's Standard Variable Rate, or SVR. That rate can be higher than the deals available to new or existing customers, so reviewing your options before the current deal expires can help you avoid paying more than necessary.
A remortgage may also be worth considering if your financial position has improved. Your mortgage balance may have fallen, your property may have increased in value or your credit position may be stronger than when you originally borrowed. Any of these could change your loan-to-value or the range of mortgage products available to you.
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Can remortgaging reduce your monthly payments?
It can, although a lower monthly payment does not automatically mean the new mortgage is cheaper overall.
If you can move to a lower interest rate, your monthly repayment may fall. A lower loan-to-value can also open up different mortgage products because you are borrowing a smaller proportion of the property's value.
However, you need to consider the whole cost of switching. A new mortgage may include product fees, valuation costs, legal costs or an early repayment charge on your existing mortgage. Extending the mortgage term can also reduce the monthly payment while increasing the amount of interest you pay over the longer term.
The useful comparison is therefore not simply "Is the new rate lower?" but "What will this mortgage actually cost me after fees and over the period I expect to keep it?"
Can you remortgage to release equity?
Yes. Some homeowners remortgage and increase their borrowing at the same time. This is often described as raising capital or releasing equity.
The additional borrowing might be used for home improvements, major purchases, helping family members or consolidating other debts. Whether a lender will agree to the extra borrowing will depend on affordability, the value of the property, your existing mortgage balance and the reason for the additional funds.
Borrowing more against your home needs particular care. Turning shorter-term unsecured borrowing into mortgage debt may reduce the monthly payment, but spreading that debt over many years can increase the total amount repaid. Your home is also being used as security for the borrowing.
Can you change the type of mortgage when remortgaging?
A remortgage can be an opportunity to change the structure of your borrowing rather than simply chasing a different interest rate. For example, you might decide that the certainty of a fixed-rate mortgage now suits you better than a variable or tracker mortgage. In other circumstances you might want to change the mortgage term or review how an interest-only mortgage will eventually be repaid.
Your circumstances can change significantly during the life of a mortgage. Income, family commitments, retirement plans and attitudes to financial risk can all change, so the mortgage that suited you several years ago may no longer be the most appropriate arrangement.
When might remortgaging not make sense?
Remortgaging is not automatically the right decision simply because another mortgage has a lower headline rate.
One of the first things to check is whether your current mortgage has an early repayment charge. Leaving a deal before the end of an introductory period can result in a substantial charge. There are occasions where the savings from switching still outweigh that penalty, but in many cases waiting until the charge reduces or disappears produces a better result.
Fees can also remove much of the apparent saving. A mortgage with a slightly lower rate but a large product fee may cost more than another deal once the full numbers are compared.
Your future plans matter too. If you expect to move home shortly, taking a new mortgage with significant early repayment charges could reduce your flexibility. Some mortgages can be ported to another property, but porting is subject to the lender's criteria at the time and should not be treated as a guarantee that the existing deal can simply move with you.
When should you start looking at remortgaging?
A useful starting point is several months before your existing mortgage deal ends.
Many homeowners begin reviewing their options around three to six months before the end of a fixed or introductory period. That gives time to understand the available products, check the remaining mortgage balance, consider the property's value and complete the application without being forced into a last-minute decision.
Depending on the lender and product, it may also be possible to secure a new mortgage deal in advance and arrange for it to begin when the existing deal ends.
Starting early does not mean you have to switch immediately. It simply gives you more time to make the decision properly.
Does the value of your home affect remortgaging?
Yes. The relationship between your mortgage balance and the value of your property is known as loan-to-value, or LTV, and it can have a significant effect on the mortgage products available.
Suppose you originally borrowed £180,000 against a £200,000 property. That would represent a 90% loan-to-value. Several years later, the mortgage balance may have fallen while the property value has increased. If the mortgage were then £160,000 against a property worth £250,000, the LTV would have reduced considerably.
A lower LTV can sometimes give access to a wider range of mortgage products and more competitive rates.
The opposite can also happen. If property values have fallen, your LTV may be higher than expected, which could restrict the deals available when you come to remortgage.
Remortgage or product transfer?
You do not necessarily have to change lender when your existing deal ends.
A product transfer means moving onto another mortgage product with your current lender. This can sometimes involve less administration than a full remortgage, particularly where you are not changing the amount borrowed or making other significant changes.
A full remortgage involves replacing the existing mortgage, usually with a different lender. That can give you access to a wider market, but the new lender will normally need to assess the application under its own lending and affordability criteria.
The easiest option is not automatically the cheapest, and the cheapest headline rate is not automatically the best overall deal. Comparing the existing lender's options with the wider market gives you a better basis for deciding.
What are the most common remortgaging mistakes?
One of the simplest mistakes is doing nothing and allowing an existing mortgage deal to move onto the lender's Standard Variable Rate without checking whether better options are available.
Another is concentrating entirely on the interest rate. Product fees, early repayment charges, mortgage term and flexibility can all change the real cost of a deal.
Leaving the decision until the final few days can also make the process harder than it needs to be. Starting earlier gives you time to compare the numbers, deal with any paperwork and consider alternatives if the first option is not suitable.
Do you need a mortgage broker to remortgage?
No. You can approach lenders directly and arrange a remortgage yourself.
A mortgage broker can, however, help compare your current lender's options with products available elsewhere, assess how different lenders may view your circumstances and calculate whether the potential saving remains worthwhile after fees and charges.
That can be particularly useful where the application is not completely straightforward, you want to borrow additional money, your income has changed or your credit position is different from when the original mortgage was arranged.
The purpose of advice is not simply to find the lowest advertised rate. It is to identify a mortgage that works when the rate, fees, criteria and your wider plans are considered together.
A simple remortgaging example
Imagine a homeowner whose fixed-rate mortgage ends in four months. If they take no action, the mortgage will move onto the lender's Standard Variable Rate when the fixed period ends.
Instead, they review the mortgage several months early. They compare the product-transfer deals offered by their current lender with remortgage products elsewhere, calculate the fees involved and decide which option gives them the best overall result.
The important difference is not that they automatically switched lender. It is that they reviewed the mortgage before the existing deal forced the decision upon them.
Is remortgaging worth it?
Remortgaging can make sense when it reduces the overall cost of borrowing, gives you a mortgage structure that better suits your circumstances, allows appropriate additional borrowing or improves the flexibility of your mortgage.
It may make less sense where early repayment charges or fees outweigh the benefit, where your circumstances limit the available alternatives or where you expect to move home shortly and a new deal would unnecessarily restrict you.
There is therefore no point at which every homeowner should automatically remortgage.
The bottom line
Remortgaging is about reviewing whether your existing mortgage still represents the right arrangement for you.
The best time to start that review is usually before your current deal ends, while you still have time to compare your lender's options with the wider market and understand the true cost of changing.
Look beyond the headline interest rate. Consider the monthly payment, fees, early repayment charges, loan-to-value, mortgage term, flexibility and your future plans together.
That gives you a much better answer to the question that actually matters: not simply "Can I remortgage?", but "Would remortgaging leave me in a better position?"
