The Mojo guide to remortgages
Whatever your reason for remortgaging – maybe your fixed rate is about to end and you’re looking to save some money, or perhaps you want to borrow some extra cash for home improvements - this guide will explain how a remortgage works
What is a remortgage?
A remortgage is a new mortgage on a property you already own. It can be a new mortgage with a new lender or your current lender.
Why would I remortgage?
There are lots of reasons why you might want a new mortgage on a property you already own. One of the main reasons is to save money.
If you’ve had a mortgage before, there’s a good chance you were on a fixed rate deal which offered a decent interest rate for a set number of years (2, 3, 5 etc.).
When that time ends, your lender is likely to move you off that decent rate and onto its Standard Variable Rate (SVR), which tends to be more expensive.
Remortgaging can get you a better deal, either with a new lender or your current one, and lower monthly repayments than you’d get on an SVR.
Other reasons to remortgage:
You want to lock down your monthly repayments for another few years
If you’ve enjoyed the stability of fixed monthly mortgage repayments for a few years but your fixed rate deal is ending or if you’re worried about mortgage rates rising in general, you may just want to sign up for another few years’ peace of mind.
You want to borrow more money
You can use remortgaging as an opportunity to borrow money for something like home improvements, a holiday, a wedding, school fees, debt consolidation, divorce settlement or whatever else you need cash for.
You want to release money from a mortgage-free property
If you’ve completely paid off your mortgage and you’re under 55, you could remortgage it and effectively take some of the money you’ve paid in back out to pay for whatever else you’d like.
Your home’s value has gone up
Whatever your property is currently worth, you only need to repay the original loan you borrowed when you bought the property. So, if your property went up by a significant amount, you could remortgage and take advantage of it.
Let’s say you borrowed £180,000 to buy a property worth £200,000. That would have given you a Loan to Value (LTV) ratio of 90%. With a 90% LTV, the deals available to you will only be so competitive.
Now, if your home’s value went up to £220,000 and you remortgaged, you’d only need to borrow enough to cover the outstanding debt. Even if you’d paid nothing off and still owed £180,000, your new LTV would be 81%.
At 81% LTV, you may find there are more competitive mortgage deals available to you.
Can I remortgage?
First of all, you need to own a property – whether that’s one with a mortgage on it or one you’ve already paid off and now own outright.
Next, a lender will want to know that you can afford the monthly repayments of the new mortgage, and that you’ve enough working years left in you to pay it off in full – so they’ll look at your income and age.
They’ll also need to calculate your Loan to Value (LTV) ratio, which is basically how much you need to borrow to pay off your current mortgage compared to the value of your property. If your LTV is 95% or higher, you’re unlikely to be eligible for a remortgage.
Let’s say your outstanding mortgage balance is £266,000 and your property is worth £300,000. You’d be borrowing around 89% of the property’s value – which means your LTV would be 89%.
If, however, your outstanding balance were £295,000, your LTV would be 98% and you’d probably struggle to get a remortgage.
Every lender’s remortgage affordability criteria is different, but our Mortgage Matcher will tell you whether or not you’re eligible.
How do I remortgage?
First, you need to find a new mortgage. You could go to a lender directly, or even see what your current lender has to offer, but they’re only going to offer you their own products, which means you could be missing out on better deals elsewhere.
If you go to a mortgage broker, they’ll look at deals from several – if not all – lenders, and you can be sure you’ve found a competitive deal. Be aware that some mortgage brokers charge a fee of around £500 for this service. Others, like Mojo, don’t charge a fee.
The broker will ask for information about you and the property you want to remortgage to get an understanding of what would best suit you. In the trade it’s called a fact-find. This includes your job, your income and outgoings, your family, your plans for the immediate future and so on.
Some brokers do this in an office, which means making time to visit them in person. Some brokers can help you over the phone, but the process is the same and the call could easily last two hours.
With Mojo you can do it online from your laptop, tablet or phone, whenever it suits you. You don’t have to finish the fact-find in one sitting because you can save your progress for later, and you can even upload the documents we need direct from your phone. End-to-end it’ll take no more than 15-20 minutes.
Once you’re done, you’ll get a mortgage in principle, which certifies what you can borrow, in principle.
Next you need to apply for the remortgage. At Mojo, we handle the entire application for you, preparing everything before submitting it to the lender for you.
The lender will then carry out a series of checks, assessing what you can afford, examining how you’ve handled credit in the past (they’ll do a credit check) and potentially checking the property is worth what you’ve asked to borrow so that they can make a decision on your application.
If you’re approved, the lender will make you a mortgage offer - which is typically valid for three to six months. Once you’ve accepted a mortgage offer you can instruct your solicitors to do their thing so that you can move towards completion – which is when your new mortgage kicks in and, if you’re remortgaging to borrow additional cash, the money is transferred to you.
How long does it take to remortgage?
It’s much faster to remortgage than getting a mortgage for the first time. Roughly speaking, it takes between four and eight weeks to remortgage – but every case is different.
Types of mortgage
When you remortgage, you’ll have to choose between a few different types of mortgage. There are fixed rate mortgages, where your monthly repayments stay the same for a set number of years, and variable rate mortgages, where your lender can change your rate from one month to another. They tend to make these changes as and when the economy improves or worsens.
Tracker mortgages follow the Bank of England’s Base Rate and set their rate a percentage above or below it. Capped rate mortgages work like variable rate mortgages but have an upper-limit to how high the rate can rise.
Discounted mortgages offer a discount on the lender’s SVR, while offset mortgages offset your savings against your mortgage balance to reduce the overall interest you pay.
When can I remortgage?
The short answer is: whenever you like – but there are reasons why you might want to wait.
For example, if you’re on a fixed rate mortgage at the moment, you might have to pay a penalty of 1 to 5% of your balance to get out of it early. So, if you had a mortgage for £300,000 and wanted to remortgage for a better deal after six months, it could cost you anywhere between £3,000 and £15,000.
If you wait until your fixed rate has ended or is about to end however, you can avoid Early Repayment Charges (ERCs). However, if there’s more to be saved by switching than the cost of the ERCs, it may still be worth remortgaging.
Remortgaging before you’ve paid much off your current mortgage can also cause problems because your LTV may be too high for most lenders.
How much does it cost to remortgage?
There isn’t a set cost, but provided you use a broker that doesn’t charge a fee and you don’t need to pay ERCs, here are some of the remortgage fees you might have to pay*:
A lender can charge between £75 and £300 to close your account if you remortgage elsewhere.
Sometimes called a completion fee, this varies from lender to lender and depends on the size of your mortgage. You can check for arrangement fees in the Key Facts Illustration document that you’ll get about the new mortgage.
Unless you’re remortgaging with the same lender, you might have to pay for a valuation of the property. Some remortgage deals waive this fee, but you could pay anywhere between £150 and £1,500, depending on the value of the property.
There may be legal fees involved, including costs for things such as a transfer of equity.
A mortgage broker will take fees into account when they recommend a deal for you.
Can I remortgage if I’m self-employed?
Yes, you can remortgage if you’re a contractor or self-employed.
You’ll have to be able to provide solid proof of your income for the last two or three years – either in the form of business accounts signed by an accountant or your tax returns.
Each mortgage lender has its own criteria for self-employed applicants, so a mortgage broker can be really helpful here because they’ll know what you’ll need to prove for each one.
Can I get help to remortgage?
Our Mortgage Matcher can recommend the best remortgage deal for you in 15 minutes and our team will handle your entire application for you until you complete – all for free.
Learn more about mortgages
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