You may well have heard of a remortgage but never gone through the process or understood what it means. In real simple terms, a remortgage is when you look to move from one mortgage deal to another.
When you take out a mortgage, they will typically have an incentive period, such as 2, 3 or 5 years. Many things can also change within your personal and financial situation within this time. So it is essential to constantly review your mortgage at the end of your incentive term, ensuring you are always on the best mortgage for your circumstance and not overpaying on your interest rate.
The Remortgage Process
In this blog, we will talk you through why it is so vital to remortgage, the process of a remortgage, and when you should look to start the process.
Why Is It So Important To Remortgage?
When Should You Start The Remortgage Process?
What Else Can You Gain From A Remortgage?
Why Is It So Important To Remortgage?
As mentioned above, a mortgage will typically have an incentive period such as 2, 3 or 5-years. When this ends, you usually end up on the mortgage lender's standard variable rate (SVR) if you do nothing with your mortgage, which can cause a payment shock* due to most of the standard variable rates being higher than your incentive period rate.
*Payment shock is where your monthly payments suddenly increase due to the end of an incentive period.
This is why it is essential to review your mortgage before the end of every incentive period, as we can then make sure we know what your new payments will be at the end of your current incentive term.
When Should You Start The Remortgage Process?
Most lenders allow you to secure a rate with them and provide you with an offer that tends to last for 3-months (and sometimes up to six). So if your mortgage deal expires in June, you could look to start the process in late February.
We state late February for a few reasons; firstly, the amount of time to gather all the relevant documents and then allow your broker time to research the market, provide you with their recommendations and process the mortgage application. Secondly, your current provider may not provide you with a switching deal known as a product transfer until you are 3-months away from your current rate expiring. We always like to check these deals, as if it has a competitive deal, it's much less hassle when you remortgage to a new lender. Thirdly, a remortgage transaction requires a conveyancer should you change lenders, as the land register needs updating with the new lender's name.
What Else Can You Gain From A Remortgage?
As we have already discussed, the main reason for a remortgage is not to go on a lender's SVR rate, as this tends to be higher than your incentive period rates. However, you can also link in other reasons to process a remortgage, and they are as follows;
House price has increased
Before you remortgage, we will assess your mortgage balance, and if you are on a repayment mortgage, this means the balance would have decreased. That feeds into your loan-to-value (LTV), which is one of the main ways a bank judges risk and sets an interest rate (Mortage Amount vs House Price).
So, if house prices have risen during your incentive period, you could find yourself at a new LTV where rates could become lower. Between October 2016 and October 2021, the average house price has risen from £214,107 to £268.349 within the UK. This is an increase of just over 25%. So if your property value has increased since you first negotiated your mortgage, there's a good chance you may hit a lower LTV product. Loan To Values tend to see interest rates dropped at the following points 90%, 85%, 80%, 75% and 60%.
Remortgage to borrow more money
Remortgaging may mean you can raise money reasonably cheaply at low rates for other things. On average, the rate of a secured mortgage is 2 or 3 times less than a personal loan and can be 10-times cheaper than a credit card.
If you want to remortgage for additional funds, the bank wants to know what the funds will be for. Remortgaging for home improvements or remortgaging for debt consolidation are two more common reasons.
If you are still reading to this point, you must be seriously interested in exploring a remortgage option, so the next part is about what you will need for the process.
What Do You Need For The Remortgage Process?
The remortgage process is very similar to the first mortgage you took out; lenders will want to assess your personal/financial situation, ensuring the mortgage is affordable for you and has little risk to them. For this reason, it is best to get the following information ready for your broker or bank/building society.
Income details
Latest 4-months bank statements
Latest mortgage statement
Credit Report**
ID (passport or driving licence)
Address ID (bank statement, utility bill, council tax etc.)
** The credit report can help us review any unsecured credit commitment balances and any potential issues such as missed or late payments. You can gain a copy of your credit report at the following link;
*** The link will provide you with a 30-day free trial, and after this period, a monthly fee of £14.99 will be applied; however, the trial or subscription can be cancelled at any time.
We may also request further documents during the remortgage process, but the above list will allow us to start the review process of the remortgage.
Overview of the remortgage process & what is next
After reading this blog, we hope you now have a clear understanding of why you should always look to remortgage. This may be as simple as a like for like remortgage and wanting to ensure you do not go on to a lender's SVR, to raise funds for home improvements or even a debt consolidation process. However, you will notice that the process was the same as your mortgage when you brought the property. The critical part is the timing; you do not want to be late starting the remortgage, as this could lead you to the SVR rate for a short time. However, starting too early could end up with the mortgage offer expiring or early repayment charges being applied.
If you would like to discuss your remortgage options, we would advise that you speak to a mortgage broker as they will compare the market for you. You can also look to talk to your current mortgage provider, but this is known as a product transfer, and they will only provide you with information on their range of products.
We hope that this has helped with the understanding of a remortgage, and if you would like to discuss your options with DJB Mortgages, please feel free to book a consultation;
0333 014 8113
Dean Bowden
Director / Mortgage Consultant
The house price data has been taken from the following source;
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR PROPERTY. YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
DJB Mortgages is a trading name of Just Mortgages Direct Ltd, which is an appointed representative of Openwork Limited, which is authorised and regulated by the Financial Conduct Authority
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