Is Remortgaging a Good Idea and How Does It Work?

Remortgaging involves switching your mortgage for a better deal, while equity release provides a loan or sells part of your home's value for a cash lump sum or regular payments, without the need to move.
  • Last Updated: 15 May 2024
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  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.


Francis Hui
Looking Into Remortgaging? Want to Make Sure You are Getting the Best Deal Available? Learn What Remortgaging Is, When You Should Remortgage, What the Benefits Are and How It Works, Before You Decide.
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Key Takeaways…

  • Remortgaging is all about comparing mortgage deals, assessing your home’s value, and subsequently using a new mortgage to clear the old one, proving a unique way to tap into your home’s value for extra cash or better terms.
  • Remortgaging could help you snag lower rates and extra cash, but consider higher payments, longer payback time, and possible fees as potential downsides.
  • Beware of beefier payments, longer debt timelines, hikes in your total debt, and early exit fees.

One of the best equity release alternatives is remortgaging, but you may be wondering how it works and have not completely grasped what it entails. 

Remortgaging, in layperson’s terms, is when you want to switch from one mortgage to another, either staying with the same lender or switching to a new one.

A mortgage is a significant financial commitment that may last a long time.

Even if you put in a lot of effort to obtain a good deal, it may not always be the best one for you, or you may discover that a once-beneficial agreement no longer provides good value.

If you are not getting the best price on your mortgage, it may be time to look into remortgaging. 

A remortgage can help you save a considerable amount while providing you with more financial flexibility. 

However, before you begin, you must have a thorough understanding of what it comprises.

In This Article, You Will Discover:

    This guide will summarise the remortgaging process and provide important tips on how and when to begin.

    Our dedicated team at Every Investor has extensive research to discover everything you need to know about remortgaging, so you can make an informed decision.

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    Remortgaging Pros and Cons Guide

    In This Article, You Will Discover:

      What Exactly Is Remortgaging, and How Does It Differ From Equity Release?

      Remortgaging involves switching your existing mortgage for a new one, often to save on payments, while equity release frees up your home’s value as cash without selling.

      What Is Equity Release?

      Equity release, for those aged 55 and above, offers a means to tap into the equity of their home.

      It serves as a viable strategy to enhance retirement funds, especially when other financial avenues are scarce.

      Equity release allows homeowners to leverage the value of their property to obtain a lump sum or steady income.

      It is important to evaluate how this choice may affect the overall worth of your estate and the inheritance you may wish to leave behind.

      Learn More: Capital Release Schemes

      What Is a Remortgage?

      A remortgage is ‌switching your existing mortgage from one lender to another; it is a completely new mortgage to replace your current one.

      In other words, you will replace your current property’s financial agreement with a new one. 

      Note that it is not the same as taking out a second loan from your current lender.

      Rather, it is a refinancing that could save you money on your monthly mortgage payments, depending on your circumstances.

      You may ‌also ‌release equity by using your remortgage to borrow against the value of your home and secure a larger loan. 

      How Does the Process of Remortgaging Your Home Work?

      The remortgage process involves securing a new mortgage deal on your property, either with your current lender or a different one, to replace your existing mortgage.

      What Does the Process of Remortgaging Your Home Entail?

      Remortgaging your home is the process of switching from your current mortgage to a new one, potentially with a different lender.

      This process starts with assessing your financial situation, including the equity in your home, your credit score, and your current income.

      This assessment helps determine whether you can secure a more advantageous deal, such as lower interest rates or better payment terms, compared to your current mortgage.

      If remortgaging appears to be beneficial, the next step is to look for the best mortgage deal available.

      This includes comparing different lenders, their interest rates, terms, and associated fees.

      After selecting the most suitable option, you apply for the new mortgage.

      The prospective lender will then carry out a property valuation and a credit check as part of their approval process.

      Once the new mortgage is approved, it is used to pay off the existing mortgage.

      Subsequently, you will make repayments under the terms of the new mortgage.

      What Are the Tax Implications of Remortgaging to Release Equity?

      Remortgaging to release equity may have tax implications that particularly concern capital gains and inheritance tax, depending on how the released funds are used.

      While the released funds are typically not subject to income tax, you may face capital gains tax if the value of your property has increased significantly.

      Additionally, inheritance tax considerations may arise, especially if you plan to pass on your property to heirs.

      When Is the Right Time to Consider Remortgaging?

      The right time to consider remortgaging is often when you can secure a lower interest rate, your home’s value has increased, or your current deal is about to end.

      When Should You Remortgage?

      You should remortgage when you are nearing the end of your initial fixed rate or reduced period and wish to save money, or when the interest rate reverts to the lender’s standard variable rate (SVR), which is typically higher and will cost you more each month.

      This is normally two to five years into the mortgage term.

      While the prospect of monthly savings is a typical motivator, there are a variety of other reasons and triggers for remortgaging.

      These can include everything from broader economic issues to changes in your financial situation.

      Typical reasons to switch… 

      • Concern about future increases to lock in today’s interest rates.
      • To take advantage of a better deal with a lower interest rate.
      • To use the equity in your home to fund home improvements or other major expenses.
      • To pay off your other debts. 
      • To take advantage of lower loan-to-value (LTV) offers and better rates.
      • To switch to a longer fixed interest period.
      • For a shorter fixed rate or one that fluctuates with interest rates rather than being bound by long fixed rates.
      • To switch to a more flexible mortgage that takes your finances into account, such as an offset mortgage, or one that allows you to make overpayments without incurring penalties.

      How Do Current Market Conditions Affect Remortgaging to Release Equity?

      Current market conditions, including interest rates and property values, significantly impact the viability and benefits of remortgaging to release equity from your home.

      It’s essential to stay informed about market dynamics to make well-informed decisions regarding your mortgage.

      When Should You Not Remortgage?

      You should not remortgage if your financial condition has worsened since or the value of your home has decreased, as you may find it difficult to obtain lower remortgage rates. 

      Remortgaging may be tough if your income or credit score has decreased since you received the initial loan amount.

      This is because a new lender will analyse your affordability when you apply for refinancing.

      Lenders must adhere to rigorous guidelines when considering whether to lend money.

      Lenders are also hesitant to offer mortgage terms to customers over 55, but that is where equity release products come to the fore.

      It is also worth noting that not all mortgages are transferable to a new home, so if you are planning to move soon, see if your remortgage can follow you.

      What Are the Potential Costs Associated With Early Repayment of a Remortgage?

      Early repayment of a remortgage may incur costs, such as early repayment charges and exit fees, depending on your mortgage terms and lender’s policies.

      Early Repayment Charges

      You will likely need to pay an early repayment charge if you remortgage before your existing arrangement expires and during the lender’s tie-in period. 

      This is a percentage of the remaining mortgage debt that typically decreases over time, implying that the longer you leave it, the less you pay. 

      Because this can cost a significant amount, it is a good idea to read your current provider’s conditions to understand their fees and what you may need to pay to leave at this point.

      If you have a small mortgage to repay, you may find that certain lenders have a minimum loan amount that they will accept as a remortgage, which is usually £25,000.

      What Advantages Can Remortgaging Offer Homeowners?

      Remortgaging can offer homeowners advantages such as lower interest rates, reduced monthly payments, and access to equity for large expenses or debt consolidation.

      What Are the Benefits of Remortgaging?

      The primary benefits of remortgaging include the potential for cost savings. 

      Because a mortgage is such a large financial commitment, remortgaging to a lower interest rate agreement can save thousands of pounds.

      Another great advantage of remortgaging is that it can help you borrow money. 

      If you are having trouble getting a loan approved, you may use the higher value of your property to gain a larger mortgage. 

      You could also use the extra cash from a remortgage to make alterations or improvements to your house that will increase its worth.

      These are typical examples of uses for additional capital received with remortgaging.

      How Does Remortgaging to Release Equity Impact My Pension?

      Remortgaging to release equity can impact your pension as increasing your mortgage debt may reduce the amount of disposable income available for pension contributions.

      Additionally, extending the mortgage term could mean paying off your mortgage into retirement, affecting your financial stability during this period.

      How Can Homeowners Prepare Themselves for the Remortgaging Process?

      Homeowners can prepare for the remortgaging process by reviewing their financial situation, gathering necessary documents, and researching the best available mortgage rates and terms.

      Getting Prepared to Remortgage

      If you’re getting prepared to remortgage, there are a few things you should do and consider to receive the best price for you and your house.

      Some ‌things to consider before and during the application process… 

      Check for Exit or Repayment Fees

      Depending on your current mortgage commitments, you may be required to pay an Early Repayment Charge (ERC) unless you are at the end of an existing mortgage contract. 

      If you do not see an ERC on your papers, contact your mortgage provider for more information.

      You should also consider these fees when shopping for a new mortgage.

      What Do You Need From Your Next Mortgage?

      The lowest interest rate may not always be the best option, depending on your specific position and needs.

      For example, you may find that a more flexible mortgage with a higher interest rate that permits you to exit the mortgage quickly is preferable for you.

      If you are unsure, seek advice from a mortgage professional to learn more about your alternatives.

      Check Your Credit Score

      Because the lender will do a credit check to analyse your situation, it is a good idea to review your credit score data before completing your mortgage application. 

      You will need to ensure there are no errors in your credit history and to see if there are any quick wins that could assist in raising your score.

      Find Out How Much You Could Borrow

      If you opt to remortgage, find out how much you can borrow, as your personal circumstances and property-related considerations will determine that amount.

      A lender will want to know that you will ‌make the payments on your new contract, just like when you first applied for a mortgage.

      You need to provide details about your income and the income of any remortgaging partners.

      The value of your home and the amount you have paid towards your mortgage (which is used to determine LTV) will both influence how much a bank will lend to you.

      What Legal Considerations Should I Be Aware of When Remortgaging for Equity Release?

      When remortgaging for equity release, be aware of legal considerations such as property ownership, potential changes to loan terms, and the impact on inheritance planning.

      This includes potential legal fees, the need for independent legal advice, and any implications for property ownership.

      Additionally, ensure you fully comprehend the terms and conditions of your new mortgage agreement to avoid any legal complications in the future.

      Are You Looking to Increase the Value of Your Home?

      If you’re looking to increase the value of your home, consider renovations, updates, and enhancements that appeal to buyers and enhance property appeal, as increasing the value of your home is one strategy to improve the amount you can refinance for. 

      Having your home appraised after you do these renovations should cause a higher value. 

      Keep in mind, though, that mortgage lenders will verify your home assessment, so any price you claim for your home must be realistic in order to support your application.

      What Is the Step-By-Step Process of Remortgaging?

      The step-by-step process of remortgaging includes evaluating your financial situation, researching the market for the best deals, applying for a new mortgage, and completing legal checks and valuations.

      A lender uses your equity, or the amount of your home that you own, as security against your new mortgage when you remortgage. 

      If your current interest rates have risen or the value of your home has increased since you purchased it, a remortgage can often result in a lower monthly repayment rate.

      All remortgages settle your existing mortgage debt and provide you with a new one; one will cover your previous debt while the other will provide you with a larger loan.

      Thinking of one as a renewal and the other as a refinance is a way to distinguish between the two types of remortgages:

      • Renewal is when you use a remortgage to replace your existing mortgage, usually to receive a lower monthly repayment rate.
      • Refinance is when you use a remortgage to release equity from your home’s worth in order to acquire a larger loan. You will still repay your present mortgage and get extra money, but you will owe more money in the long run.

      Find Out What Your Property Is Worth

      Your new mortgage lender will need to find out what your property is worth and understand the value of your present home. 

      You could obtain an estimate of value by using Internet valuation tools or by requesting an appraisal from an estate agent (some estate agents may charge for this service).

      Check How Much Is Left to Pay

      Check your most recent mortgage statement to determine how much is left to pay on your existing loan. 

      The lender will use this as a guide to determine the amount of money you may need to borrow for your next mortgage. 

      Apply for an Agreement in Principle (AIP)

      After you have reviewed mortgages and selected the one that is appropriate for you, you can fill out a mortgage AIP to see how much a lender will give you based on your remortgage needs.

      Compare Remortgage Rates and Deals

      It’s important to compare remortgage rates and deals to get the best outcome for you and your financial needs.

      Simply enter a few data points into our mortgage calculator to obtain an estimate of your monthly payments. 

      Check All Remortgage Costs

      Check all remortgage costs and consider any additional charges that may be involved with the refinancing procedure while assessing all remortgage options:

      • Interest rates vs. product charge – Consider the total refinancing costs, such as the difference between a higher interest rate without a product fee and a lower interest rate with a product fee, for example.
      • The valuation charge is used to certify the property’s worth. The price will vary depending on the certification.
      • If you decide to engage a broker to help you refinance, they should tell you if they charge a fee or if the service is free.

      Apply for Your Mortgage

      You may be ready to apply for your remortgage now that you have an AIP, so now you can apply for your mortgage. 

      A few documents will be required, including evidence of identification, proof of income, financial conditions (loans or credit commitments), and current mortgage information.

      The Last Step for Completing a Remortgage

      The last step for completing a remortgage will see the lender conduct several checks to confirm your present circumstances and arrange for the property to be valued to approve the remortgage package.

      Where Can You Find the Best Deals for Remortgaging?

      To find the best deals for remortgaging, explore comparison websites, consult financial advisers, and directly contact banks and building societies for their latest offers.

      How to Find Remortgage Deals

      A financial services provider can help you find and compare remortgaging deals from different lenders.

      We always advise consulting your financial adviser before making any decisions.

      Common Questions

      What Does the Process of Remortgaging Involve?

      Can You Explain How Equity Release Through Remortgaging Works?

      What Are the Pros and Cons of Remortgaging for Equity Release?

      How Does Remortgaging Affect My Finances in the Long Term?

      Are There Any Risks Involved in Remortgaging for Equity Release?

      How Long Does a Remortgage Take?

      What Remortgage Costs Are There?

      Can You Remortgage Early?

      Can You Remortgage With Bad Credit?

      Should I Remortgage With the Same Lender or Switch Providers?

      How Does Remortgaging Work to Release Equity?

      What Is the Downside of Remortgaging?

      Is Remortgaging a Good Idea?

      In Conclusion

      How remortgaging works is ‌switching your existing mortgage from one lender to another.

      It is a completely new mortgage that you can take out to replace your current one.

      Remortgaging can save you money on monthly payments and unlock extra cash if you have equity in your property.

      Remortgaging is most commonly done by homeowners nearing the end of their lender’s initial fixed-rate or reduced period. 

      There are several reasons you should consider remortgaging and circumstances when you should not.

      If you are looking into remortgaging, make sure your credit score is good, as lenders will look into this as well as affordability before refinancing.

      We also recommend having your property valued before looking at your options.

      You will also want to consider the costs involved in remortgaging and compare these against the potential savings.

      If you are thinking about remortgaging, do not wait until the last minute — give yourself three to six months before your current agreement expires to think about your choices and shop around.

      A mortgage expert can assist you if you are not sure if remortgaging is right for you or when to do it.

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