How does remortgaging work?
In essence, you’re borrowing money from one lender to pay back another (unless you’re remortgaging with your existing lender), but the aim is to reap the benefits by doing so – such as lower repayments, more flexibility or to gain extra funds.
Your mortgage term is 25 years and you have £150,000 outstanding. You’ve been on a fixed rate of 3% for the past five years but that deal is coming to an end. The remaining 20 years of your mortgage will revert to the provider’s standard variable rate and this will increase your monthly mortgage payments.
Rather than move to the provider’s SVR, you find another provider offering a fixed rate of, say 3%, and decide to remortgage your home for the remaining £150,000 with them.
The amount you borrow is used to pay off your previous mortgage in full. You then start making repayments on your new mortgage provider, initially at the new fixed rate. You could set the term of your new mortgage to 20 years to match the remaining term on the previous mortgage or you could reduce or potentially extend the term to suit your circumstances.