A guide to remortgaging your home
Now that you’ve possibly come to the end of your fixed term, you might want to start looking for a better deal on your mortgage. Or you might be looking for a second home or to do up an existing property to rent out. Whatever the reason, we have put together a guide on what you need to know.
Frequently asked questions
How does remortgaging work?
Remortgaging is the process of switching your existing mortgage to a new deal, using the same property as security. You can remortgage with the same lender or a different provider – you are not moving home and your new mortgage will still be secured against your existing property.
Why do people remortgage their home?
There are a variety of reasons as to why people remortgage their homes:
Want a better deal: your current deal could be coming to an end – most fixed rate mortgages last between two to five years before they become a standard variable mortgage. You may want to find better interest rates or perhaps start to overpay to pay off your mortgage quicker and your lender won’t let you.
Access to a sum of money: Some people remortgage their property to get access to a sum of money (equity) – you could potentially free up cash to pay for an extension to your home, for example. But by increasing your mortgage, remember you’re likely to increase your monthly payments. However, depending on your age you might be able to increase how long your mortgage lasts (the term) to balance this out.
What fees are there when you remortgage?
When you remortgage your home, there is often an arrangement fee on a new mortgage. You may also need to pay solicitor fees (although some lenders may offer this for free as part of the remortgage deal. Plus, be aware that if your existing mortgage hasn’t yet come to the end of its term you might be charged exit fees for leaving .
How can I work out how much I can borrow?
To get a better idea of what remortgaging could do for you, use our mortgage eligibility calculator. You can enter the value of the home you’re interested in, your deposit, monthly income and outgoings and how long the mortgage would run, and it will show you how much you are likely to get and what the monthly repayments are likely to be.
Those repayments are important. Remember you need to be able to afford them comfortably every month, along with all the running costs of owning a home like household repairs, bills, council tax and insurance.
Keep in mind that interest rates could increase over time, which, if you’re not on a fixed rate mortgage, could increase the cost of your monthly repayments.
What mortgages are available?
Compare the Market makes it easy to do a mortgage comparison, but first we should look at the kinds of mortgages that are available.
You need to decide if you want a repayment mortgage or an interest only mortgage. You then need to decide whether you want a fixed rate mortgage or one with a variable rate:
- Repayment mortgages
With repayment mortgages, you pay off the interest and some of the overall cost of the house every month. At the end, typically after 25 years, you should have managed to pay for the whole house and the interest - you will own your home outright.
- Interest only mortgages
With interest only mortgages, you pay only the interest on the loan and nothing off the capital (the amount you borrowed). So after 25 years the mortgage will still be outstanding.
Interest-only mortgages offer lower monthly payments, but you will need to show from the start that you have plans for how you will pay off the loan at the end of the term. However, these aren’t very common.
- Variable mortgages
Variable rate mortgages could be ‘trackers’ where the interest rate is above, below or the same rate as the Bank of England base rate, or fully variable, where your lender decides on a rate and can change this at any time (within the conditions of the product).
Other kinds of variable are available too, like capped or collared mortgages where there might be upper and lower interest rate limits. With any of these your mortgage payments could go up or down as interest rates change.
- Fixed rate mortgage
If you choose a fixed rate, your interest rate and your monthly payments are set at a certain level for an agreed length of time. These, and a lot of variable mortgages, are often 2 or 3 year deals, but you can also get a 5 or 10 year fixed rate mortgage.
At the end of the deal you are automatically switched to another rate, usually a banks standard variable rate.
Time to compare
Whether you have a fixed or variable mortgage, it can be a good idea to shop around a little before your mortgage deal ends, and move to another one if it will save you money. If you would like to check your eligibility then check out our mortgage eligibility calculator.
So now you’re ready to use our mortgage finder. Just enter the house price, the amount you want to borrow and over how long and we will list the latest offers from a wide range of providers. They will be in price order, based on monthly repayments.
Always read every detail before signing up. After all, this is one of the most important financial decisions you can make.