Published: 15 September 2016
Remortgaging explained
So you’ve done your sums, and you’ve decided that you could save money by remortgaging. But how do you go about it?
How do I go about remortgaging?
Remortgaging is when you pay off your existing mortgage and switch to another lender. If you think it might be right for you, here’s how you go about it.
1. Find out how much you could save
To find out if you can save money by remortgaging, you have to look at the difference between what you’re paying now and what you would be paying with your new mortgage. That’s your potential saving. Once you’ve got that figure, you need to take away the cost of the fees you’ll have to pay to get out of your current mortgage and into your new one. If the fees are lower than the potential savings, then remortgaging could be a good idea.
2. Find the right deal for you
The first thing to do is find a mortgage deal that’s right for you. This isn’t necessarily just about getting the lowest possible interest rate. Think about what you want from your mortgage. Do you want the security of knowing your mortgage repayments will be exactly the same every month? Maybe you could focus on fixed rate. Do you want to use your savings to lower the amount of interest added to your mortgage? Might be worth looking at offset mortgages.
Once you’ve added up all the costs and made completely sure that this is the right mortgage for you, it’s time to get in touch with the lender.
3. Contact the lender
Once you’ve decided on your product, get in touch with the provider, and see if they’ll lend you the mortgage you want on your property. Most lenders will offer a few different ways to do this.
If you receive an advised service and the mortgage is regulated, you will be protected by certain Financial Conduct Authority (FCA) rules.
The other option is called “execution only”. This is when you make your own decision about your mortgage and apply without getting any advice from the lender. This is a quicker process, and you can often do it online. But "execution only" isn't subject to the same FCA rules as the advised service, so you won't receive the same protection.
When you apply for a remortgage, you first get an Decision in Principle, which is also referred to as a DIP, just like the first time you took out a mortgage.
4. Wait for the legal and valuation work to be done
This is the less fun bit. It normally takes about two months to go through, depending on your lender.
Do I have to switch to a new lender?
If you do want to stay with the same lender, another option is a “product transfer”. This is where you don’t pay off your old mortgage, but you do switch to a new deal. The benefit of this is that many lenders won’t charge you legal or valuation fees, and the process tends to be a bit quicker than setting up a whole new mortgage.
Remortgaging fees: How much does it cost to remortgage?
The fees you have to pay to remortgage depend entirely on your situation.
Below are listed the fees you may incur by leaving your mortgage provider and moving to a new one. Bear in mind that you probably won’t have to pay all of these. Many of them only apply in certain situations.
Check with your current and new lender to find out which fees you’ll have to pay to sort out a new mortgage. Please note that the name given to a fee can vary by lender. If in doubt you should check with your existing lender and your new lender before proceeding.
- Early Repayment Charge
You usually have to pay an Early Repayment Charge if you want to get out of a mortgage deal early. Lenders charge this because they lose out on interest if you leave your mortgage early. Early Repayment Charges can be big – often between 1 and 5% of your mortgage – so you’ll often have to borrow more from your new lender to cover the cost.
- Exit fee (or redemption fee)
Most lenders will let you pay an exit fee either when you set your mortgage up, or when you leave it. There’s usually no interest charged on it, so it’s the same cost either way. Exit fees are usually no more than £300.
- Arrangement fee
You pay an arrangement fee to your new lender. It can have lots of other names too – “application fee”, “product fee”. Arrangement fees are usually around £2,500.
- Booking fee
Booking fees normally cost between £100 and £200. Some remortgaging deals won’t come with any booking fees.
- Valuation fee
Valuation fees pay for the lender to value the property.The lender needs to know the value of the property to ensure that they do not lend more than it's worth. If, in the future, a borrower isn't able to pay the mortgage, in some circumstances the lender will repossess and sell the property to recover the amount outstanding. When you remortgage, most lenders won’t charge you a valuation fee. If you do have to pay one, it’s usually between £300 and £400, although some lenders may charge more.
- Conveyancing fee
This fee pays for the legal process of swapping your property from your current lender to your new one. Many remortgaging deals don’t charge this fee, however please check with specific lenders for confirmation.
- Broker fee
If you get your new mortgage through a mortgage broker, you might have to pay a fee to them. This won’t always be the case – sometimes brokers will get all their commission from the lender – but you’ll often have to pay them something. It might be a fixed amount, or it might be a percentage of your new loan – which tends to be more expensive.
Remortgage with Leeds Building Society
Looking to remortgage? If you've got a mortgage with another provider, you could save money by remortgaging with Leeds Building Society.
Remortgage with Leeds Building Society
This guide is intended as a summary only and does not constitute financial or legal advice given by Leeds Building Society. We recommend that you seek independent financial/legal advice if you have any questions or queries.
Your property could be repossessed if you don't keep up your mortgage repayments.
