What is remortgaging?

Perhaps you’ve got a mortgage but aren’t sure if it’s right for you anymore. If so, you may consider remortgaging.

Remortgaging allows a property owner to pay off an existing mortgage with a new one. The switch can be to your current lender or a different one.

What is the difference between remortgaging and a second mortgage?

The names of various mortgage-related products and services can be confusing. Remortgaging involves changing your mortgage deal. It does not refer to taking out a second charge mortgage (also known as a second mortgage) on your property, which exists alongside your current contract.

What are the benefits of remortgaging?

There are many reasons why you may be looking to remortgage your property. These could include:

• Better interest rates
  You may want to remortgage your property because you think that you can get better interest rates on a new deal.  This could be due to unexpected reasons, which could include a rise in the value of your property, or a change in your loan-to-value (LTV), which measures the proportion of your mortgage that is mortgaged to the proportion that you own.
• Wanting more flexibility on repayments
  Perhaps you’ve received or are about to receive additional income and want to pay your mortgage off quicker, but your current deal won’t allow you to. Or perhaps you’ll be in between jobs – for example, changing jobs or going into full-time education. You may want to be able to put a pause on your repayments, but your lender won’t let you. Remortgaging could offer you more flexibility.
• To consolidate debt
  You could potentially add other debts to your mortgage, such as for home improvements, by remortgaging.
• Expiry of your current mortgage deal
  If your existing mortgage deal is about to expire and your property hasn’t been paid off in full, you should review your options. If you do not take any action, your lender is likely to move you to their default Standard Variable Rate (SVR), which is a rate that is set by them rather than tracked in proportion to Bank of England interest rates. This could potentially be a more expensive option for you.

Some things to consider

Remortgaging can be a useful solution for some property owners. However, like all other financial products, there are some things that you should consider before making the move:

• Whether you need to change
  Change isn’t always necessary when it comes to your mortgage. It’s possible that you may not get a better deal, especially when you factor in any potential extra fees.
• What type of remortgaging deal you’ll need
  There are many types of remortgaging deals. Each could have its own pros and cons, particularly when compared to your current deal.
• Penalties, hidden fees and additional costs
  Mortgage lenders may charge you a penalty for remortgaging if your current deal hasn’t expired yet. This could potentially be offset by the savings that you could make from switching to a new deal. However, some lenders may allow you to switch mortgages before expiry, with no penalty.
• Whether you’ll qualify for a remortgage
  You’re unlikely to qualify for a remortgage if you have bad credit history or can’t show that you can make the subsequent remortgage repayments. A credit report can help give an indication of how lenders may view your creditworthiness.

Affordability checks

If you’re applying to remortgage your property with a different lender, it’s likely that you’ll have to prove that you can afford the repayments. A credit score provide you with an indication of your level of creditworthiness.

Factors that can affect credit scores can vary. Generally, though, they focus on:

• Your credit balance/s
• Your credit history
• If you are repaying your debts on time
• Confirmation of your current address on an electoral roll

 To read more about the factors that can affect your credit score, click here.

Lenders don’t tend to publicise their criteria for successful remortgage applications. However, your credit report and score could give you an idea of what you may need to improve on before applying for a remortgage. You can get access to your Equifax Credit Report & Score here – it’s free for 30 days and £14.95 a month thereafter.