Remortgaging: how to save on home loans

Get the best deal for the roof over your head

1. Who needs to remortgage? You might be on an existing deal where the fixed rate has finished and the lender has put you on its standard variable rate which is seldom the best deal.

2. You could also remortgage if you want to raise money cheaply, perhaps to pay off debts. This is because the interest rate on a mortgage is usually lower than that on a credit card, for example. It’s not always the best idea as you could pay more interest over the longer term with a mortgage than a short-term loan.

3. Moving off the standard variable rate onto a fixed rate when those interest rates are low means you’ll be protected if interest rates rise during the term of your deal. The disadvantage is that if interest rates fall, you’ll be stuck on the higher rate.

4. The alternatives to a fixed rate are normally a discounted variable rate (which may move in line with the Bank of England base rate) or an offset loan. The latter involves having a savings account with the lender as well. Instead of paying interest on the cash, the lender only charges interest on the sum of the mortgage minus the savings.

5. Remortgaging is a legal process because the lender has an interest in your home. If you’re swapping lenders, solicitors will be involved. If you’re staying - but swapping deals - it’s called a product transfer, not remortgaging, so there aren’t any legal fees.

6. You’ll get the best remortgaging deal if you have a lot of equity in your home – in other words, the smaller your outstanding mortgage is as a proportion of your home’s value, the better. Don’t just guess at your home’s value, do some online research first.

7. You’ll need to check how much you can borrow. To judge whether you can afford repayments, lenders will want to know about all your major financial commitments. If you’ve been behind with your mortgage payments in the past, you might find it harder to remortgage.

8. Remortgaging may not be worthwhile if there’s a penalty for getting out early, unless your interest rate is so steep that it’s worth paying the penalty. Also, if you’ve got a tiny outstanding mortgage, it might not be easy or make economic sense to remortgage. There are lots of remortgaging calculators online which can help you work out the best dealt.

9. To get the new mortgage, you’ll need to provide documents which prove your salary and identity, such as pay-slips, a passport and proof of address. There could be legal and arrangement fees to pay too, although often the lender will cover or subsidise these.

10 . If you want to go ahead, approach the new lender. You can reserve a rate for a few months at least. The lender will value your home. Often they will pay for this. If not, it will cost you £200 or so. Your lender and your solicitor or conveyancer will deal with the process from then. After a few weeks, your home loan will transfer and your repayments will switch to the new lender.

 

More stuff:

  • Check out mortgage deals at MoneySuperMarket here
  • Get a good idea about your home’s value at Zoopla
  • Work out whether remortgaging is worth it at mortgage broker London & Country

 

Last updated 29 June 2018.