What is a Remortgage?
In simple terms a remortgage is a process in which you change the financing of the property. The term covers either a change in lender, bank or building society, and also a change in mortgage product, but staying with the same lender. During a remortgage, or refinance, the legal ownership of a property may or may not change, but the property itself does not as at least one of the original owners must remain as a legal owner, therefore making it different from a sale or purchase.
Reasons for a remortgage
A remortgage may be the option of choice for homeowners for a number of reasons. The list of reasons is endless, however some of the most common we see are:
- Often mortgage products come with an initial tie-in period, in which if you sell the property, or re-finance during this time, you will have to pay a penalty. When this initial tie in period ends, some homeowners chose to remortgage if they find a better product.
- Some mortgage products have fixed rate periods which last a certain number of years. During this time the interest rate cannot be increased but when the fixed rate ends, you are liable for a different interest rate which may be higher than the rate at which the deal was fixed. Again, homeowners may seek a better deal if they do not meet current lending criteria of their current lender, which could have changed over the years.
- In all walks of life, people like to shop around. This is no less true with houses and mortgage products. A house is one of life’s biggest assets and it is only natural that people want to ger the best deal possible, therefore people can choose to remortgage if they come across a deal which offers a rate that suits them better.
- Some people have the option and ability to make overpayments on their mortgage, others save money in the time they have a mortgage or the equity they have in the property increases over the mortgage term, which results in a reduction in their Loan to Value ratio (LTV). This can open the door to different and more attractive mortgage products.
- The same can be said where mortgage lenders do not allow overpayments, which is the case for some lenders. Homeowners may wish to change to a lender or product which does allow this option.
- Some people find themselves in a position where they wish to release some of the equity in their property. This may be to enable them to start a business, carry out home improvements etc. Remortgaging is one way to release that equity.
- If you have a variable rate mortgage product and the interest rate rises, you may choose to remortgage to a fixed deal or a lower rate.
- A change in circumstances could be a deciding factor in a remortgage. You may have experienced a separation and be taking part in a transfer of equity. If the remaining and/or any joining party need to keep or raise finance to enable them to take ownership of the property, then they will need to carry out a remortgage at the same time, even if staying with the current lender.
Things to consider before a remortgage
It is always advisable that you seek the advice of a financial advisor or broker when considering a change in finances. They will also be able to advise on the best products and test your affordability. In some cases, brokers and advisors have access to certain deals and will have knowledge about what lenders are offering in the current market.
There are some important factors to consider which may mean that a remortgage is not currently the best decision for you in the longer term. These include:
- Being in a current fixed rate term in which you would attract a substantial penalty if you chose a new product. Whilst a new deal may look better on the surface, it is important that you consider the additional costs including any redemption penalty, conveyancing legal fees, mortgage valuation fees, arrangement fees, fees to your broker or advisor
- If you have poor credit history, it may be more advisable to improve this before considering a remortgage product
- If your financial circumstances have changed in the time since taking your initial mortgage out, including a change income, changing from employed to self-employed and starting your own business. All of these can affect your affordability, and how a mortgage lender will view your circumstances
- If you are separating or divorcing, the lack of income of your partner can seriously affect mortgage affordability especially if you are looking to take on a product in your sole name.
What is the process of a remortgage?
Your conveyancing solicitor will guide you through the remortgage process alongside any broker or advisor you are using, however as a general overview, the process is as follows:
1. Instruct a conveyancing solicitor
Once you have found a mortgage product you are happy with, it is important to find a conveyancer that has the expertise, experience and time to handle your remortgage. It is important to discuss your individual situation and check the solicitor can act for your chosen mortgage lender before instructing them.
2. Complete ID checks
Your conveyancer will ask you to complete a series of onboarding documents and client care paperwork. They will also request proof of identity, proof of address and source of funds information where relevant. Identity and anti-money laundering checks will then be carried out ID checks on all people and funds involved in the remortgage.
3. Review the property title
Your conveyancing solicitor will find details of your on the Land Registry and will obtain copies of the title deeds. Everything will be checked including any restrictions, current charges and any leasehold information where relevant. If the property is a leasehold, then the conveyancer may require further information from the Freeholder, landlord and/or management company. As part of this, they will check for any consent required or notices that must be served for a change in mortgage lender or product. If any ownership is to change as part of the remortgage, then the conveyancer will also check any consent or notices that are required here.
4. Reviewing existing finance
If the property has a current financial charge secured against it, the conveyancing solicitor will need to obtain details about this charge including any redemption figure and penalties. A redemption figure is the amount of finance outstanding and will include any penalties or associated fees. This is the figure that will be paid back to the lender on completion. Due to interest rates and regular payments, it is typical for this to be an estimate during the course of a transaction and a final redemption figure will be requested in time for completion.
5. Property Searches
Your conveyancer will make enquiries with your proposed lender as to whether they require property searches to be carried and/or whether indemnity insurance is an option here to speed up the process. Ultimately it will be at the discretion of your lender.
6. Property valuation
You proposed lender will carry out a valuation to determine the value of the property. This maybe a desktop valuation, or they may wish to send a representative out to the property. The valuation report will be included within a mortgage offer in most cases/
7. Review the mortgage offer
Once received, your conveyancer will carefully check all of the terms of your new mortgage offer and will report to you on their findings. Any issues that are discovered will be discussed with you and your lender. Your conveyancing solicitors report will set out to you, the terms of your offer and your obligations under the charge.
8. Sign the mortgage offer
Once you have received your report and you are happy to go ahead, your conveyancing solicitor will require you to sign the final offer along with any supporting documents. Conveyancers have different ways of handling signatures so you should check with your specific conveyancer as to how they would like your signature and those of any witnesses if relevant.
On the agreed date of completion, your conveyancer will receive funds from the new lender and will then use these to pay back (or redeem) your previous mortgage. Depending on the monetary value or consideration of your specific transfer, any remaining funds will be transferred directly to you. This is especially so where you have used a remortgage to release equity in a property for another use.
10. Register the transaction with the Land Registry
The Land Registry must be notified of any financial charges registered against a property and any changes to these. They will be noted on the Office Copies for a property. It is the conveyancer’s role to ensure these changes are reported to the Land Registry. Your mortgage lender will also require their charge to be noted on the Office Copies for the property. Once updated, the Land Registry will send out revised versions of the Office Copies to the property owners. There is a registration fee to pay for this process, set by the Land Registry, which will from part of your disbursements payable during the transaction.
Independent Legal Advice
In some circumstances, the conveyancing solicitor or lender may require certain parties in the transaction to obtain independent legal advice. It could be due to a change in circumstances or specifics about a mortgage product.
How can we help?
We have created a specialist team of conveyancing solicitors ready and able to assist with remortgages. Please get in touch with a member of our team to discuss how we can help you and we will provide you with an itemised quotation. Contact us in the office on 0800 799 9892 or email@example.com