Finding the cheapest remortgaging deals can be overwhelming, even if you’ve done it before.  Getting the right mortgage broker to find you the right interest rates and deal length can save you time and money, so it’s important that you understand with how the process works and what costs are involved so you can work out whether it’s worth it.

In this guide, we’ll go through how remortgaging works and what costs are involved so you can make an informed decision.

How does remortgaging work?

Remortgaging is when you move your mortgage on your existing property from one lender to another. Some people think that it’s called remortgaging when you move your mortgage to a new deal with your current lender, or borrow more money from them – but this is called a product transfer.

You might want to remortgage for a few reasons:

• You are coming to the end of your current mortgage fix or deal

• Your current lender can’t offer you the best deal on the market

• You want to borrow more money against your property

The remortgage process isn’t too tricky once you understand it, but you might prefer to work with a mortgage broker to help you get the right deal for you and to reduce the hassle. Here’s what to expect:

1. Research the best mortgage rates

There are plenty of mortgages on the market and many different rates. Do your research and shop around to get an idea of the available rates. It’s important to ask your current lender what they can offer, as they can often give you preferential rates – but not always.

You’ll also need to consider all the costs that can come with remortgaging. Many lenders will charge you a product fee, which is sometimes known as an arrangement, application or booking fee, and they may also charge a valuation fee to confirm the value of your property. You’ll also need to pay a solicitor to manage your remortgage, so it’s important to factor all these costs into remortgaging.

Once you’ve got an idea of the deals available, you may want to speak to a mortgage broker to help you understand which mortgage is right for you.

2. Get a decision in principle

A decision in principle, sometimes known as an agreement in principle, is a document a lender gives you outlining how much they would be willing to lend to you based on your circumstances. It involves having a soft credit check done to look at your credit history, but it won’t affect your credit score.

Getting a decision in principle helps to give you confidence that you will be accepted for a mortgage by that particular lender, but it’s not a guarantee. It just gives you an idea of how much you could borrow.

3. Apply for your new mortgage

If you’re happy that you’ve found the best deal for you and you’ve got a decision in principle, you can apply for your new mortgage. If you’re using a mortgage broker, they will complete the application on your behalf, saving you the worry of getting everything right. They’ll just ask for supporting documents such as payslips, bank statements and details of your current mortgage and house insurance. Once they submit your application, the lender will perform a hard credit check.

4. Consult a conveyancer

You’ll need a solicitor to help with the legal work when you remortgage. Some lenders may appoint a solicitor for you and will cover the cost, while others will expect you to pay the legal fees and appoint your own conveyancer.

Your solicitor or conveyancer will manage all the paperwork and transfer of funds for you. They’ll send you all the legal documents for you to read and sign.

5. Completion

Just like when you buy a new property, you’ll have a completion date for when your new mortgage starts and your old one is paid off. The only difference is you won’t have to go through all the hassle of moving! Your solicitor should let you know when the funds have been transferred.

Then, you should shortly receive a letter from your new lender letting you know when your mortgage commenced with them and when you should expect your first payment to come out of your account. This payment is often larger than your ongoing monthly repayments, but they should let you know of the amount in writing before your new mortgage starts.

When should I start to remortgage?

You can remortgage at any time. However, you may have to pay early repayment charges if you try to remortgage many months or years before the end of your mortgage deal. Most people tend to wait until they’re nearing the end of their current fix or interest rate, once they are no longer subject to early repayment charges.

It’s also worth remembering that if you don’t remortgage or arrange a new deal with your current provider before your rate ends, you’ll probably be moved onto your lender’s standard variable rate (SVR). This tends to be a higher rate than the one you were on, and is generally a higher rate than most fixed rate deals or tracker mortgages. So, it’s best to remortgage just before your deal ends so you don’t end up making repayments on a higher rate.

How much does it cost to remortgage?

How much it costs to remortgage will vary from lender to lender and may even vary between their mortgage deals. But here are the types of fees you’ll need to be aware of and may have to pay, depending on your situation:

Early repayment charge (ERC)

An early repayment charge is a charge for repaying your mortgage early, or overpaying more than is allowed, during a fixed period – usually the length of your initial fix, which could be 2, 3, 5 or even 10 years. It’s essentially a fee for breaking your mortgage deal early, and is usually a percentage of your outstanding mortgage debt.

The ERC usually reduces the longer you stay with your current mortgage deal. For example, if you’re on a 2-year fixed rate, you may pay a 2% ERC if you repay the mortgage in year 1, but 1% in year 2. If you’re on a 5-year fix, you may pay 5% if you repay the mortgage in the first year, then it may reduce by 1% every year after.

So for a £150,000 mortgage, you could pay between £7,500-£1,500 in early repayment charges if you remortgage early.

Avoiding an early repayment charge

To avoid paying an ERC, make sure your remortgage completes after your current deal ends. It rarely ever works out cheaper to pay an ERC to get a better interest rate, but it’s worth looking if interest rates have significantly decreased since you took our your current mortgage. A mortgage advisor can help you decide whether it’s financially reasonable.

Deeds release fee

Some lenders will charge a deeds release fee to forward your property’s title deeds to your solicitor. Check your mortgage offer and the Key Facts Illustration to see whether your lender charges it. You might have been given the option to pay it upfront at the start of the mortgage, or at the end.

The deeds release fee is usually between £50-£300.

Product fee

A product fee is sometimes called a booking fee or application fee, but they can call it anything they like! This fee used to be to cover admin costs, but now lenders often use it as a way to look like they’re offering a good interest rate, when actually their mortgage costs more overall.

For example, a lender may charge the lowest interest rate on the market to show up at the top of popular ‘best buy’ mortgage tables. However, if they charge a £2,000 product fee, this could make their deal more expensive than a lender offering a slightly higher interest rate with a fee of £500.

Make sure you consider the cost of the product fee before choosing a new mortgage deal. You can usually pay the fee up front, so you don’t pay any interest on it, or add it to the mortgage if you can’t pay it in full. Expect to pay at least £1,000 in product fees for a top interest rate.

If you’re unsure how to calculate the overall cost of a mortgage including the product fee, speak to a mortgage advisor to ensure you’re making the best decision for you.

Valuation fee

Most lenders will include the valuation fee in the cost of your mortgage, but if they don’t, it’s likely to cost between £300-£500.

The valuation fee covers the cost of a surveyor coming out to inspect your property and check that your property is worth what you said it is worth. This is to give the lender security that if you stop paying your mortgage, they can repossess it and get a good amount for it when they sell it.

Conveyancing fee

A conveyancing fee covers the cost of the legal work required when you move lenders. Most lenders will include a free legal package, but bear in mind that this means that the lender gets to choose the solicitor, which means you won’t have much control over the process. And since the lender is probably paying the solicitor a low fee, don’t expect anything to move fast.

If you do have to pay for your own conveyancer, this usually costs around £350.

Broker fee

It makes sense to use a mortgage broker to help you remortgage, unless you’re absolutely sure that you know what you’re doing. You may have to pay a fee for your mortgage broker, but many brokers are fee-free as they’ll get paid a commission from your lender when your mortgage completes.

If your broker does charge a fee, it could range from a fixed rate of £300 up to 1% of your mortgage amount. Make sure you fully understand a mortgage broker’s fees before going ahead with them.

What are the risks of remortgaging?

There are certainly more benefits than risks to remortgaging, as you’ll usually get a lower interest rate than your lender’s standard variable rate and you can manage your monthly payments by increasing your mortgage term if you’re finding it hard to keep up with your repayments.

However, there are a couple of risks to consider before you remortgage:

• Negative equity: If house prices have fallen since you took our your last mortgage, there is a small risk that you could end up in negative equity, which means that you owe more money than the home is worth.

• Paying more interest: If you decide to increase your mortgage term, you will pay more interest in the long run. However, you can always reduce your term again at your next remortgage if your circumstances change.

• Fees: As we’ve explained, there are quite a few costs involved in remortgaging, so it’s important to get the balance right between the fees and a better interest rate to ensure that it’s still worth remortgaging.

What are the requirements to remortgage?

The requirements to remortgage are much the same as when you first apply for a mortgage. You’ll need to prove that you are who you say you are, and that you have enough income to keep up your monthly repayments.

A lender may want to see the following documents before they proceed with your mortgage application:

• Proof of identity (usually a passport, driving licence or birth certificate)

• Proof of address (a utility bill, credit card bill or mortgage statement)

• 3 months’ worth of bank statements

• Your last 3 months’ pay slips

• Your last 3 years of accounts or tax returns if you’re self-employed

• Proof of bonuses or commission if you get them and are applying for a remortgage based on this income

• Your latest P60

Do you still need a deposit to remortgage?

No, you don’t need a deposit to remortgage. When you remortgage, the lender will usually use the equity in your property (the difference between the value of the property and the amount you want to borrow) as security against the loan. However, if you want to borrow more than 90% of the value of your home, then you will need a deposit.

It can sometimes be worth paying a deposit if it means that you will end up in a lower loan-to-value (LTV) bracket. The LTV is the ratio between the amount you want to borrow and the value of the property. Often, the lower the LTV, the better the interests rates are – so if you’re close to entering a lower bracket, for example your LTV is currently 76%, it may be worth paying a deposit to get you into the 75% bracket to access better rates.

Remortgaging advice

If you need advice on remortgaging, HaMuch can help. Fill in our simple form and we’ll pass your details to our partner who can put you in touch with mortgage brokers to help you find the best remortgage deal for your circumstances.

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