Remortgaging process explained: Is now the time to get a good deal?


a woman signs a purchase...

It's the biggest loan you are ever likely to take out, and one of the longest-running financial commitments you will have. From the day you buy you first home until the day you make your last monthly payment, your mortgage will make up a substantial chunk of your household budget.

But with historic low rates, remortgaging – taking out a new home loan with a different lender, which is used to pay off your old mortgage – could help you to shrink those monthly payments.

Lenders at the top of the mortgage best buy tables are offering rates below 1.5% for two-year fixed rate deals, and for five-year fixed rate mortgages there are deals as low as 2.69%. "Mortgage rates today are extremely low," says Laura Howard, money editor of the comparison site "You could save thousands, annually, by remortgaging."

Is now a good time to remortgage?

In short, for a lot of people, yes it is. There are low rates to be had across the mortgage market on tracker and discount mortgages, but for many borrowers locking in low rates with a fixed deal is most appealing. Should interest rates rise in the next few years, your repayments would be fixed at today's levels. Ray Boulger, senior technical director at broker Charcol says: "Fixed rates are very close to their all time lows and the best rates are unlikely to fall significantly from current levels."

But while rates are attractive, the decision on whether to remortgage or not depends on individual circumstances. In some cases, it may not add up. If you are locked into a deal with early-repayment penalties, you may wipe out any savings with those fees. And if you have very little equity in your property, or if personal circumstances have changed – for example if one of the homeowners is now self-employed or has reduced their income – you may find it difficult to secure a new mortgage to benefit from the low rates. Similarly, if you are considering moving house in the near future, now is not a good time to commit to a fixed-rate mortgage with exit penalties.

But if, on the other hand, you have no repayment penalties, perhaps paying your lenders SVR, if you plan to stay put for more than two years, and you have built up some equity in your property, it is a good time to explore your options. The best deals around are aimed at people who have a deposit of at 40% of the value of the property, but even with smaller deposits you could find a cheaper deal.

"Lenders are certainly looking to attract borrowers with very attractive rates, and most will be available to remortgage borrowers," says David Hollingworth of brokers London & Country Mortgages. "Most will offer some kind of remortgage incentive, which will typically mean free valuation and free legal work for remortgage."

Some of the two-year deals have very low rates, but if you plan to stay in your current home for longer than two years, a five-year fixed rate deal may bring greater savings over time, according to Ray Boulger, senior technical manager at brokers John Charcol: "For most people a five-year fix, with rates available under 3% providing there is at least 25% equity in the property, will make more sense than a two-year fix. This is because, despite being a little cheaper, a two-year fix only protects from rate rises during a period when interest rates are very unlikely to increase much, if at all."

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What are the other costs involved?

Rates these days may be low, but the arrangement fees can be extremely steep. "When assessing any mortgage it is absolutely crucial to factor in the costs rather than just be drawn to the rate," Hollingworth says. "Arrangement fees can be as much as £2,000 or more on the very lowest rates, but for many it will be better value to look at a better balance between rate and fee - especially for those with smaller mortgages."

On top of arrangement fees, there are other costs involved, such as valuation and conveyancing costs. Some lenders will offer to cover these costs, but some won't: "It's important to look at the other incentives on a deal such as free valuation and legal work which can also amount to hundreds of pounds. Many of the lowest rates will offer little or no help with these costs as well as charging bigger fees," says Hollingworth. If your existing mortgage is subject to exit penalties, you will also need to take these costs into account when calculating your savings.

How do I get started?

Comparison sites are a good place to find out what rates are available and make comparisons. Try out online mortgage calculators to work out what you could save. If you are confident in your calculations and are sure you have found the best deal, you can apply directly with a lender for a mortgage – but don't be tempted to test the water by applying to those that interest you before having made a firm decision. "What you don't want to do is to apply for several different mortgages, as rejections will show up on your credit history and could impinge on your chances of borrowing in the future," says Howard.

Indeed, she adds: "It's always a good idea to call a broker to find out what is best for you." A broker will be able to advise you on the deals that best suit your circumstances and guide you through the application process.

The lender will want to check that your property offers good security for the loan, and that you can afford the repayments. The property will undergo a valuation and the lender will check your income, your credit history and your employment status as part of the application process. If your circumstances are different now than when you took out your current mortgage, you may find your options have changed. "Just because you have a mortgage does not mean you will meet another lender's criteria today," says Howard.

How long will it take?

"The length of time it takes from application to completion varies considerably, depending partly on the complexity of the case and the efficiency of the lender and broker, but also on the applicant providing all the information requested in a timely manner," says Boulger. "Sometimes the lender will not require any information over and above that which should be submitted with the application, but on other occasions additional documentation is requested and the quicker this is provided the quicker the offer will be received."

He adds: "In some cases where the LTV is low and the applicant gets a high credit score the lender will use a fast track process which includes an automated valuation, rather than a valuer having to visit the property." If you qualify for the fast track, you might be lucky enough to have your new mortgage in less than one week, but a two to four-week timeframe is more typical. Once the new mortgage is in place, you can sit back and enjoy the savings, which could amount to thousands.

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