Most borrowers no longer have to stay with the same mortgage lender for the whole term of their loan. In the past, you might have gotten a mortgage and stayed in the same place for the whole term. However, more and more people are realising that this might not be the best way to spend their money. If you don't shop around, you might end up paying too much for the biggest purchase most people make in their lives.
Many people don't want to switch mortgages because it reminds them of when they first bought their home and they had to apply for a loan, get it approved, do legal work, pack, and move.
In comparison, getting a remortgage is a simple process. There won't be as much paperwork, pressure, or stress, and there won't be any gazumping or gazundering. Most of the time, it just means moving your loan to a new lender with a better interest rate.
The Good:
Most of the time, when you remortgage, your monthly payments will go down. It can also be a good time to look at your finances. You might decide to pay off some of the capital or even raise some extra money. In this case, borrowing at competitive mortgage rates might be better than looking for unsecured loans with generally higher interest rates.
In many cases, a remortgage is a way to get a new fixed or discounted rate when the old one ends, so you don't have to go on the dreaded standard variable rate (SVR). It may also be that rising interest rates have made your deal less attractive than it used to be. For example, if you have a tracker rate and the base rate is going up after a long period of stability, your deal may no longer be as good as it used to be.
The Bad
Getting a remortgage is much cheaper than buying a house. There is no stamp duty to pay, no estate agents to pay, and only a small amount of legal fees. However, remortgaging does cost money. You might have to pay a valuation fee, since this is often a requirement of a new mortgage. However, the lender might pay this fee for you.
The lender arrangement fees and the early exit charge/early repayment charge are the two most important fees to think about. If you pay off your mortgage within a certain amount of time, many lenders will charge you a certain percentage of the balance. These rates will be very different, and some specialised lenders will even charge as much as 6%.
Recently, arrangement fees have gone up a lot and now cost between GBP499 and 1.5% of the loan amount on average. You can add these costs to the new mortgage, but you will have to pay interest on them for the entire loan term.
The main reason for the big rise in arrangement fees is that lenders want to make money. Because there is more competition in the market, lenders now have to offer better rates and deals, so their profit margins aren't as high as they used to be.
How to Refinance Step by Step
Talk to your current lender near the end of your tie-in period to find out what they can offer you. It's important to remember that this could mean less paperwork and lower costs in the long run.
Figure out how much it will cost you to leave your current lender and think about it (if applicable). If these are too high, you should stay where you are until the tie-in period is over.
Make sure you do your research! Look at what your lender is offering and see what else is out there. Compare the APR because it takes into account all the fees and costs that come with it.
Choose the type of mortgage you want. Start things off by filling out an application.
If you have your own lawyer, talk to them about the remortgage. Some mortgage lenders have their own lawyers who can help with the process.
Once the appraisal is done and all the other paperwork is in order, your lender will send you a formal mortgage offer, which you must accept. Sign the papers, and the deal will almost be done.