Mortgage refinancing or remortgaging is a subject we love to talk about often. We’ve written a few articles about how remortgaging works, how remortgaging can save you money, and all the things you need to consider when remortgaging.
In this article, we’re going to delve deeper into:
- How soon you can remortgage
- How often you can remortgage, and
- When to remortgage.
How soon can I remortgage?
Most people take out a mortgage with a fixed rate to give security and consistency over their monthly payments for a set period of time, usually 2 or 5 years. At the end of this set period your mortgage will then move to a standard variable rate which will likely be a much higher interest rate and therefore a higher monthly cost.
It’s wise to choose to remortgage at this point to save money on your monthly mortgage payments or release money from the equity in your property (read more here about why you might remortgage and capital raising).
It is always worth checking with your mortgage provider though, as some lenders are more flexible than others and may allow you to remortgage sooner. If you’ve spent time and money investing into your property and improving the value of your home, you may want to release this equity.
However we are urging all customers to contact their lender or mortgage broker sooner rather than later if they’re considering a remortgage. If you are concerned that rates are going to continue to rise, it’s often possible to secure a new rate many months before your current mortgage expires. If you wait until nearer the time, however, rates may have gone up several times more, meaning much larger payments, alongside not having enough time left to achieve the remortgage deal you want before you revert to the standard variable rate.
Can I remortgage early?
There’s no reason at all you can’t leave your fixed-rate mortgage early and move it to another lender, but whether you should or not is something else to consider.
Most lenders won’t let you apply to remortgage with them within six months of purchasing/inheriting a property, often called a ‘day-one remortgage’. They are usually only allowed in specific circumstances, like when a property is inherited and they are trying to remortgage in order to raise the capital required to renovate. A lender cannot stop you from remortgaging to another lender (or repaying your loan in cash), all they can do is apply an early repayment charge (ERC), which would usually be at its highest in the first year.
Almost all mortgage lenders will charge you early repayment charges and/or exit fees for switching at any point before your fixed rate ends so it’s important to speak to your mortgage provider before making any decisions. However it’s crucial you sit down and work out the figures; it may be worth paying the fee if the amount you’re likely to save over the term of the proposed new product costs more than the fee itself. We advise you to speak to an adviser during the consideration process.
How often can I remortgage?
Realistically you can remortgage as many times as you like. Even though there are no limits on how many times you can remortgage, that doesn’t mean you should do it at every turn (remember those early repayment fees we mentioned earlier?)
The average mortgage term lasts about 25 years, and most of these are on two year, five year, and 10 year fixed rates. So if we went for the average five-year fixed-term mortgage on a 25 year deal, you could expect to remortgage about five times.
But many people will increase the balance of their mortgage every time they remortgage, even if they don’t pay any ERCs. Most mortgages require the customer to pay a fee of around £1000 which can be added to the loan rather than paying it in cash. So if you take a 25 year mortgage and use 2 year fixed products, you’ll remortgage 12 times and add around £12k to the amount you need to repay. It could be even more than that if you factor in valuation and legal costs too!
You can choose to remortgage at any time, but we advise picking a time when there’s a positive advantage to move mortgages. These could be reasons like:
- You’ve found an interest rate lower than what you’re currently paying
- You’ve come to the end of your current fixed-rate deal
- You’ve built up at least 10% equity in your home
What happens to my credit score if my remortgage application fails?
When you apply to remortgage, your lender will look at your income and outgoings to see if you can afford the remortgage deal. If you don’t pass their checks, your application is likely to be refused.
Like when applying for your initial mortgage, being refused a deal won’t, in itself, hurt your credit score. Your credit report will only show that you applied for a remortgage, but it won’t show whether you were accepted or not. However, being refused a mortgage can lead to more attempts to get one, and each application will leave a hard search on your report which will impact your credit score.
Can I remortgage with the same lender I’m already using?
You can remortgage with your current lender, although this isn’t called a remortgage, but a ‘product transfer’ which is not normally considered to be new lending, unless you choose to borrow more.
Staying with your existing lender can potentially save you money as you won’t pay new charges, but it’s also worth checking that the rate your current lender is offering is competitive with the rest of the market.
How long does a remortgage take?
The remortgaging process usually takes about 8 weeks after you apply. The fastest way is to remortgage with your current lender with a product transfer.
However it can take longer, especially if you’ve bought through the Help to Buy or Shared Ownership Schemes as the legal work involved is more intensive and complicated.
Why can’t I remortgage?
There are a number of reasons why you might be struggling to remortgage. Most of these come down to failing the stricter affordability checks that have likely been brought in after you purchased your property.
Sometimes referred to as ‘mortgage prisoners’, these people can be stuck on higher interest mortgages, or their lender’s standard variable rate even though they’re up-to-date with their mortgage payments and not trying to increase their borrowing.
Low credit rating
If you don’t have a good/high credit score, you are going to be less likely to be able to remortgage. And if you are able to, you’re less likely to get a good deal and will probably face higher interest charges.
Reduced income
If your personal/household income has dropped since you took out your mortgage you might struggle to remortgage. Income doesn’t actually make up part of your credit score, but a drop in income could mean you fail the affordability assessment.
Missed payments and mortgage arrears
If you’ve missed mortgage payments in the last 12 months or are currently in arrears on your mortgage you are going to struggle to remortgage.
High loan to value
The value of your property can go both up and down, meaning that when you come to switch your mortgage you would be assessed on a higher loan to value (LTV), which reduces your chances of successfully remortgaging.
The loan to value is the amount you borrowed initially, so when you’re remortgaging, it’s the amount you have left to pay back, compared with the value of the property. If you’re in negative equity (when the amount outstanding on your mortgage is more than value of the property) this causes problems when it comes to remortgaging.
We can help you if you’ve got more questions on remortgaging, or if you would like to quickly understand how much you could remortgage for and how much money you can save, why not complete our remortgage calculator.
