How to remortgage (and potentially save thousands)

Remortgaging could save you a package here's how to do so as painlessly as possible.

Love Money
Last updated: 23 May 2018 - 12.24pm

With the Bank of England expected to increase the Base Rate of interest by up to 0.5% in 2018, mortgage lenders will inevitably pass any increase to the cost of borrowing on to their customers.

Assuming such a hike comes to pass, a homeowner with a £100,000 variable-rate mortgage over 25 years would see their annual bill rise by more than £300.

Someone with a £200,000 mortgage would be facing a hefty £600 increase.

With this in mind, anyone on a variable deal should consider remortgaging and switching to a fixed-rate deal.

Compare mortgage rates today: see if you could save

Don’t be put off by last year’s rate hike

You might feel that, as the Bank of England has already announced hiked the Base Rate last November, there’s no point in remortgaging.

After all, that increase will surely already been factored into lenders’ remortgage deals.

While this may be true, it also follows that those increases are being passed on to homeowners on their lenders’ Standard Variable Rate.

That means the incentive to switch is pretty much as strong now as it was before the Base Rate hike.

What’s more, remortgaging is far simpler than getting a mortgage to purchase a new home.

So, if you’re considering doing it, here are some steps to help you through the process.

Start by getting organised

The first step to remortgaging should be getting to grips with your current situation.

It’s a good idea to get together any paperwork on your existing deal so that you can make a note of the interest rate you currently pay as well as the SVR your lender has in place for when your offer comes to an end.

You’ll also need to find out what you have left to pay on your loan. This information can be found on your annual mortgage statement or by contacting your mortgage provider.

As well as this information you should check what charges apply for leaving your deal.

Your current deal might come with Early Repayment Charges (ERCs). ERCs tend to apply up until your fixed or variable deal ends, but these can carry on after this period with some mortgages so double check. They usually apply to your whole mortgage debt so can cost thousands of pounds.

You should also find out the exit fee your provider will charge you to leave your current deal. This can be between £50 and £200 and will be applied on top of any ERCs, but can only be charged according to what was stated in your original mortgage contract.

It’s also worth mentioning the stricter mortgage lending rules, which mean you’ll need to provide evidence you can afford your new mortgage, not just now but in the future when rates rise.

Lenders will look at your income and want detail of your outgoings. So check your spending habits won’t let you down before you come to apply. Using an overdraft or taking out a payday loan won’t look good.

You should try to reduce your outgoings and boost your disposable income at least three months before you plan to apply for the new deal.

Take a look at what’s on offer

Once you know a bit more about where you stand you should shop around for a remortgage deal to see what’s on offer.

You’ll need to have an idea of the type of mortgage you want to go for (interest-only or repayment, fixed or variable, flexible or offset) as well as your loan-to-value or LTV, which represents what you are borrowing as a percentage of the value of your property.

You can calculate your current LTV by dividing your outstanding mortgage debt by your property’s current value (check Zoopla or Rightmove for an indication if you don’t have a recent valuation from a lender or estate agent) and multiplying the result by 100.

For example a £150,000 mortgage debt on a property valued at £200,000 the current LTV is 75% (£150,000 / £200,000 x 100).

Be aware that your LTV band may have changed since you first got your deal. It may have improved as a result of your regular payments and/or the property increasing in value.

Or it may have got worse as a result of a fall in the value of your property.

If you have less than 5% of equity (which means you need to borrow more than 95% of what your property is worth) or you are in negative equity (where your loan exceeds the value of your property) you will find it difficult to remortgage.

Armed with your LTV range you can browse for an appropriate remortgage deal (remember these deals are different to deals for new purchases).

To compare deals you can check out lenders directly, see if your current account provider can offer a special deal (existing customer deals tend to be more competitive) and use a comparison site.

Or you may appreciate the help of a mortgage broker in your search to find the best deal for your situation and fight your corner with the lenders.

However, bear in mind that some banks and building societies don’t work with brokers so make sure you check out these deals too.

If you’re confident you can do it solo, pick out a deal and continue with these steps!

Challenge your existing lender

Once you’ve picked out a deal you can challenge your existing lender to beat it.

Like energy and telecoms providers, mortgage lenders don’t want to lose customers, so yours might make you an offer you can’t refuse.

Lenders have specific mortgages, called product transfers. designed to keep borrowers that are thinking of leaving.

These just change the terms of your current deal, which is usually quicker and cheaper especially if you haven't asked to increase your mortgage debt.

It will be simpler and cheaper to stick with your current lender than go elsewhere as you can avoid certain fees and charges. But don’t let this sway your judgement.

[Read more: Where house prices rose the most in 2017]

Work out the cost of switching and the savings

Before you make the decision to remortgage it’s important that you work out the costs of leaving your existing deal and moving to a new one as well as finding out how much you will actually save (especially if this is your objective for the remortgage).

Use the information you gathered in step one to work out the cost of leaving your deal and whether you’ll have to pay an exit fee and any ERC on the date you do it (you’ll save thousands by switching after ERCs no longer apply).

Then you’ve also got to consider the fees associated with the switch and the new mortgage.

You might need to pay legal fees to solicitors as well as charges associated with setting up a new mortgage like valuation fees, arrangement fees, booking fees and in some cases a higher lending charge and transfer fee.

Rather than raid your savings to pay for these upfront you may be able to find fee-free deals or deals that have some of these costs (like legal and valuation fees) included.

Alternatively, you could add the fees to your new mortgage, but this can be expensive as you’ll be paying interest on the extra debt for the duration of your deal.

Once you’ve decided which deal you think you want to switch to, you should also do a savings comparison to ensure you’ve picked the right one.

There are a host of mortgage calculators available online. You can input the cost of your current deal (or its future SVR) and compare it against the cost of a new deal to see what sort of savings you will get over the introductory period and over the term of the deal.

Once you’ve taken a closer look at your situation, the deals available to you and the costs and savings you should be able to decide if remortgaging will benefit you.

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