Remortgage Tarts Do it Better

Keep your mortgage competitive and save money

Be a remortgage tart and switch lenders often in order to keep your mortgage competitive.  

Totally Money brings you everything you need to know about remortgaging for a better interest rate, how to do it and watch to watch for.  Remortgaging can knock thousands of pounds off your total mortgage cost and years off the loan term so that you can own your home sooner and for less.

What is a remortgage?

A remortgage is the process of replacing your current mortgage deal with a new one.

Why remortgage?

The two main reasons for a remortgage include

1. Remortgaging in order to take advantage of a new interest rate or competitive introductory offer with a new lender;

2. Remortgaging in order to release some of the equity in your home by renewing your mortgage for a larger amount 

Remortgaging for a better interest rate

Having a competitive interest rate on your mortgage is vital because different interest rates being charged on a set amount can mean a big difference to the total loan cost.  You should always aim to keep your debts at the lowest interest rate possible.  If your mortgage is not at a competitive rate you could be spending thousands more pounds each year repaying your mortgage than is necessary, and could save yourself a lot of money and many years off your mortgage term by switching to a better rate elsewhere.

Remortgaging is essentially about chasing the best interest rate on your mortgage possible.  Lenders are much more interested in finding new customers than retaining their current ones.  The most common way to compare mortgages is through a consideration of the interest rates on offer.  Mortgages are advertised with respect to this introductory interest rate offer in order to appear as the most competitive deal in comparison to other lenders; these introductory offers usually take the form of discount rate mortgages , fixed rate mortgages , cash-back mortgages or capped rate mortgages for a set period, after which the interest rate reverts to the lender’s standard variable rate.  At this point, your mortgage has stopped being competitive, as standard variable rates are generally high, and it is a good idea to consider your options within the market and take advantage of another lender’s introductory interest rate offers.

Opting to remortgage in order to find a better rate elsewhere can be an excellent money-saving technique, and when used correctly, you may find that you save thousands of pounds and cut years off your mortgage. Switching between lenders in order to take advantage of introductory offers is a good way to ensure your mortgage is always working for you, and your interest rate is constantly competitive. 

Borrowing: Secured loan vs. remortgage

If you are looking to borrow money in order to fund an expensive purchase or special occasion such as a wedding, a remortgage can be a good option as opposed to a traditional secured loan.  

The difference between a secured loan and a remortgage is that a secured loan is a second loan against your property, while a mortgage is the primary, or first, loan on the property.  This means that mortgages are generally offered at more competitive rates than secured loans because the property itself acts as security on the loan; in the event that you are unable to complete on your repayments, the mortgage will be settled by foreclosure before any secondary loans.  In other words, the risk to the lender is higher on a secured loan than a mortgage.

The advantage of a remortgage over a secured loan is that the interest rates are more competitive.  Also, your finances will remain streamlined in one loan; rather than having to juggle various monthly payments, your monthly mortgage payments will simply increase or the term of your mortgage will extend.  

The main advantage of a secured loan over a remortgage is that they are much simpler and cheaper to set-up. 

Is a remortgage suitable for my situation?

A remortgage may suit your if you are:

• Looking to borrow from the equity in your home at a low rate for an expensive purchase or event, or to make some home improvements

• You want to consolidate your unsecured debts and streamline your finances

• You have come to the end of the introductory offer on your mortgage and have reverted to the lender’s standard variable rate

• You want to switch to a better rate 

Costs and charges:

Remortgaging can be expensive and time-consuming, especially as it is standard practise for lenders to charge hefty exit fees for borrowers looking to complete on their loan early and switch lenders.

Exit fees generally cannot be avoided.  However, the timing of your remortgage can mean a big difference in the penalties you will incur by switching lenders. 

Lenders dissuade their customers from remortgaging while still benefiting from an introductory reduced-rate period through ‘lock-in periods’.  The lock-in is enforced by charging very high penalties for remortgaging before the end of the period, and may even include the paying-back of any cash incentives or reduced cost services that the customer has benefited from in the set-up and arrangement of the mortgage.  The reason for this lock-in period is that as mortgages become more and more competitive, and lenders continue to reduce their interest rates in order to attract new borrowers, the profit being made from new mortgages is very low.  In fact, some lenders do not reap a profit from new mortgages for a number of years; the majority of profit is yielded once the mortgage reverts to the standard variable rate.  In order to protect their own interests, lenders lock their customers into the mortgage contract for a set amount of time, and will charge hefty fees for remortgaging during that time in order to recoup some of their expenses. 

The end of the lock-in period should coincide with the end of the introductory offer.  It is important to ensure this is the case when seeking a new mortgage, as it is not uncommon for the lock-in period to extend past the end of the introductory offer.  This is referred to as ‘overhang’.  Some lenders may do this in order to lock the customer into the higher standard variable rate for a set amount of time, and will make it very expensive to remortgage even after you have ceased benefiting from the reduced interest rate.

As a result of lock-in charges, remortgaging before the end of the introductory period is not recommended, as any deal you may benefit from with another lender will more than likely be negated by the penalties incurred by leaving your previous mortgage.    
 
Aside from any charges in leaving your current mortgage, you will also incur a new set-up fee and legal fees in the process of taking out a new mortgage elsewhere, and depending on the lender, up-to-date valuations and surveys may be required.

Watch out for:

In order for a remortgage to still be a viable option despite these charges, avoid lenders whose lock-in period extends past the end of the introductory offer so that you don’t have to choose between being hit by double exit fees or remaining stuck on a higher, uncompetitive rate.  You should also ensure that the new mortgage rate will save more money than you will spend during the process of remortgaging; work out how much you will save each month, how long the offer runs for, and offset the benefits with the expenses incurred to ensure you really will be better off on a new deal. 

What do I need to do?

1. You need to assess your current mortgage and consider it’s competitiveness with what you could gain by going elsewhere.

2. Work out the exact charges involved with leaving your current lender.

3. See what is available to suit your needs with alternative lenders using independent comparison services , and work out the set-up and arrangement fees; remember to add in solicitors, valuation and survey fees.

4. Compare your total costs involved with remortgaging with the monthly savings you will be making on your new deal.  Factor in the upfront costs as monthly expenditure over the term of the introductory period.  For example, if the introductory offer runs for 2 years and your upfront costs, when spread over a two year period, do not reduce your monthly payments by a substantial amount, it may be worth going for a longer introductory period on slightly higher rates.  Consider that at the end of the introductory period you may find yourself wishing to remortgage again, so don’t view upfront costs as a one-off payment assuming they will be absorbed by any savings you make.  

5. You should always speak to your current lender before making the decision to go ahead with switching to a better deal.  They might be able to offer you a better deal in order to keep your business, in which case you may save a large amount of money and hassle.  However, if they cannot beat the alternate option you have found elsewhere, get remortgaging!  You could save yourself thousands of pounds on your mortgage and be free of your mortgage years earlier than if you stay with your current lender. 

Please note: this website, and the articles and information within it are based on journalistic research. It does not and should not be construed to constitute financial advice. Any information should be considered in regard to specific circumstances. All tips are followed at your own risk and should be followed up with your own research.  For more please refer to our terms and conditions of use.