What is remortgaging ? The basics of remortgaging

Remortgaging is, in essence, changing your lender at a certain point in your mortgage term. Remortgaging has become more and more popular in recent years as more people realize that remortgaging is a good way to save money in interest payments.

How remortgaging works

If you wish to switch lenders you can. How this is done, basically, is that the debt is transferred to another lender because the second lenders covers the whole remaining capital amount that you had with your previous lender.

Why remortgage

There can be many motivations to remortgaging. In addition to smaller interest payments, the most common reason, you might also want to extend the term or to release equity.

Releasing equity can be a good way of covering other debts that you might have accumulated and simplify your finances while improving your credit rating at the same time.

Extending the term of your mortgage will result in lower monthly payments. Remember that, although the monthly payments are smaller, the total amount of interest paid is larger.

The costs

Lenders usually prevent borrowers from switching to the competition in the first couple of years by means of overwhelming penalties on early repayments. If you wish to switch while a tie-in clause is still in effect it is rarely profitable to do so. This is because the difference in interest rate charged would have to be very big to cover all the other costs of remortgaging plus the tie-in clause penalties and still amount to a saving.

Even if remortgageing, initial reservation fees and valuation fees will still apply. After adding up all the costs, compare it to what you would save in interest payments because of a lower interest rate, and see if it’s worth the trouble.

You may save and not have to remortgage ...

After having seen the better part of the remortgaging offers out there always have a discussion with your lender. See what your present lender is willing to offer in terms of a better deal and how it compares. Do not compare interest rate only but also take into account the fees and other costs of switching lenders.

Final Word

If your current lender is not willing to modify your mortgage to suit your needs but another lender is, it is profitable to remortgage. Do not take remortgaging lightly and be careful to calculate the profit of remortgaging considering all the costs involved.

It is advisable to have a read over our guides on specific types of mortgages. A remortgage can have any set of characteristics of any classic or irregular mortgage system and it is important to know what each is about since you can switch to a different type of mortgage altogether.

If it is difficult for you to calculate the cost of a remortgage or the profit please use one of our mortgage calculators.