Re-mortgages

If you have a mortgage and you find a better deal or want to change your terms, a re-mortgage could be the answer. A re-mortgage can release equity from your property or reduce your mortgage payments.

What is a re-mortgage?

Re-mortgage is simply a word for describing the taking out of a new mortgage on your property. There are a few reasons why you might want to do it.

  • You’re on the lender’s Standard Variable Rate
    Lenders typically offer mortgages with introductory discounted rates for a fixed term. Once this term expires, the mortgage rate reverts to the lender’s Standard Variable Rate (SVR). The SVR is usually a very high interest rate and the banks would love you to stay on it forever, but smart borrowers typically re-mortgage to a cheaper deal.
  • You are stuck in a fixed-term mortgage, but found something better
    If you are already in a fixed-term mortgage and see something cheaper, it is possible to re-mortgage. However, lenders often make it expensive to do this with Early Repayment Charges (ERCs) and mortgage setup fees.

    If you have a mortgage with an ERC, you can pay off the mortgage whenever you like – as long as you pay the lender a fee. This fee is usually a percentage of the money you have borrowed, so it can be a very large amount. ERCs often taper as you approach the end of the fixed term, but even a 1% ERC can be many thousands of pounds.
  • You want to overpay, but your bank won’t let you
    Overpaying a mortgage is an excellent way of reducing the burden of mortgage interest. You might have inherited some money or been given a bonus at work and want to pay down your mortgage.

    Overpayments come directly off the borrowed capital, so it immediately reduces the amount of interest accruing. However, it is common for banks to trap their customers with overpayment limits, say 10% of the outstanding balance per year, or prevent overpayments at all. This being the case, you may want to re-mortgage to a more flexible deal.
  • House price rise has given you a better Loan to Value
    Loan to Value is the ratio of how much of the property you own against how much the bank owns. If you have a property with a mortgage in a desirable area and its value has risen dramatically, this rise increases your equity but what you owe to the bank remains the same. As such your LTV improves. As your LTV reduces, the range of mortgage products available to you usually increases. Re-mortgaging could allow you to reduce your monthly payments and your mortgage term.
  • Example of how a lower LTV can unlock better mortgages
    You have £50,000 equity in a £200,000 property, so you owe the bank £150,000 and your LTV is 75%. Then, property prices rise so your property is now worth £300,000. You still owe the bank £150,000, but your equity is now worth £150,000. As such, your LTV has dropped to 50% and should give you access to some of the best deals around.

Other reasons to re-mortgage

  • You want to release equity from your property
    Equity release involves borrowing money against the equity you have in your property. Equity is the portion of the property that isn’t mortgaged, so the owner of a £200,000 property with a £120,000 mortgage outstanding would have 40% equity. Re-mortgaging would allow you to retrieve some of the equity in exchange for increased borrowing. You may wish, for example, to perform some renovations, extensions, etc.
  • Change of circumstances
    There are myriad ways in which a change in circumstances can warrant a re-mortgage. A newly married couple might wish to take out a joint mortgage. During the process of a relationship breakdown or divorce, one owner of a property held in joint names might want to “buy out” the other owner by taking on additional borrowing.

Do I need a solicitor to remortgage?

Yes. Lenders don’t normally allow borrowers to perform their own conveyancing. Once you have a mortgage offer in principle, you should approach a solicitor to handle the conveyancing. Your solicitor will liaise with lenders to obtain redemption statements. They will check that the property has a sound legal title and perform any relevant checks and searches. You have to sign the mortgage paperwork in front of a solicitor as a witness. When the re-mortgage completes, the solicitor will pay off the old mortgage and remove the old lender’s interest in the property and register the new one at the Land Registry.

Note that if you are switching mortgages but remaining with the same lender, commonly known as a ‘product transfer’, the lender already has most of the initial paperwork relating to you and your property. This process can often be done on the phone with the lender (or online) and does not normally require a solicitor.

Any questions?

Call your local Inghams office, or contact us online. We have conveyancing specialists at all of our branches who can help you with your re-mortgage and any other property matters.