Remortgaging a house means replacing your existing mortgage with a new one.
But is there a requirement to put down a cash deposit because you are applying for a mortgage with a new lender?
Most of the time, no deposit is necessary when you remortgage. You are simply swapping one mortgage for another, without moving house.
In this article we look at the basic process of remortgaging, how your home equity can affect your choices and whether a deposit will be needed.
How do remortgages work?
Remortgaging is an excellent option for those looking to save money on their mortgage or make other changes to an existing arrangement. A remortgage is simply taking out a new mortgage and replacing the old one, which means that you may be able to get a better interest rate, borrow more money, access additional funds from your home’s equity, switch from a variable rate mortgage to a fixed rate mortgage, or even change who’s on the mortgage.
Even if your mortgage has a term of 30 years or more, you don’t need to commit that long – you have options.
When it comes to remortgaging, there are two key things to remember: you must find the best product for your needs and make sure that any switching costs do not outweigh any savings that you make.
The first step is establishing how much money you need and how long it needs to last. This will help determine which type of loan will suit your needs best – either a standard variable rate (SVR) mortgage or a fixed-rate mortgage. The SVR comes with fluctuating rates over the course of its repayment period while the fixed-rate keeps them consistent throughout the product term.
Once you have decided on your product choice and established how much capital and time frame you require then it’s time to shop around between different lenders until you find the most suitable deal for your circumstances.
This could include finding better rates than what’s currently being offered by your current lender which can save you hundreds if not thousands over time through reduced monthly repayments. Additional chargeable fees such as early redemption penalties should also be taken into consideration before making any commitments.
Our qualified mortgage brokers can do this research for you, searching over 100 lenders to find you a great deal.
Finally, once all the paperwork has been completed and approved by the lender, your new mortgage is used to pay off the current one.
Why would someone need to remortgage?
There are several reasons why someone might need to remortgage their home.
Here are our top six:
- Switching to a better deal – you may be able to get a lower interest rate or reduce the length of your loan, potentially saving you money over time
- Home improvements – you may want to borrow more money on top of your existing mortgage in order to make improvements or build an extension
- Consolidating debts – remortgaging can be a way of consolidating existing debt into one affordable lump sum payment
- Second property purchase – you could fund the deposit or the whole purchase price
- Removing an ex-partner from the mortgage – this is known as a transfer of equity.
- Change of lender – if you want to move to a different lender for any reason, such as better customer service or being offered better terms
Can you remortgage for a deposit on a new property?
Yes, it’s possible to use the equity that you have built up in your current home to help with a deposit on a new property.
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How does a transfer of equity work?
If you have split up with a partner and need to remove their name from the mortgage, you will need a transfer of equity. This process legally changes who owns the house and who is named on the mortgage at the same time.
Our Transfer of Equity Guide explains the process of buying someone out of a house via a remortgage.
Do you need to pay a deposit?
When remortgaging your home, lenders accept the equity you have built up as your deposit, meaning you don’t need to provide an additional cash deposit.
Furthermore, the amount of equity that you have paid off since you took your mortgage out can also influence the rates that lenders offer to you – typically, lenders will provide more competitive rates if there is a higher amount of equity in the property.
When you first bought your property you will have paid a cash deposit, and used a mortgage to cover the rest of the purchase price.
Over time, most properties have increased in value and this means that your equity has grown. Your equity is the part of the property that you own outright.
In addition, with a repayment mortgage your balance goes down each year. This also contributes towards your equity, as your debt is reducing.
Why is this important?
The amount of equity you have, and the loan to value, affects which lenders you can approach and which mortgage deals are available to you.
For example. You will have a lot more lenders and deals to choose from with a 75% mortgage, compared to a 90% mortgage. And the rates on offer will be cheaper.
This is because, with a higher level of equity, you are a much lower risk to the banks so they reward you with lower rates.
Is there any advantage to paying a deposit when remortgaging?
Yes, there are two possible advantages:
- By paying an additional deposit you will need a smaller mortgage, which means your monthly repayments and the interest charged will be lower
- The extra deposit means that your loan to value will have decreased, you are borrowing a smaller percentage of your home. This could mean that you qualify for lower interest rates as the LTV has improved
There’s two important things to consider before putting your life savings in to the mortgage.
- The capital that you wish to use will not be returned to you. (it’s basically in your homes value). So you must be certain that you are left with an adequate amount of savings
- Speak with us about your loan to value. Lenders have different percentages that they work to. We can find out exactly how much you need to pay to move into the cheaper LTV band
How long does the remortgage process take?
The remortgaging process typically takes 4-8 weeks to complete, depending on your situation. If you are switching lenders then this time frame may take longer, as a solicitor will be needed to manage the legal aspects of the swap.
In most cases, however, the legal work is fairly minimal and many lenders will offer incentives such as free legal fees when you switch to them. This makes the remortgaging process simpler and more cost-effective in the long run!
To speed up the remortgaging process, it is important to provide accurate and relevant documents such as proof of earnings when requested. Having these documents on hand can help ensure that the process runs smoothly and efficiently.
Our Remortgage Guide explains the process in more detail.
When should you start thinking about remortgaging?
To make the most of the remortgaging opportunity, it’s a good idea to keep track of when your initial fixed or tracker rate is due to expire. Aim to start looking three to six months in advance, so you can explore all available options and get a better understanding of the current market.
The whole application process typically takes between four and eight weeks, so getting your research done early can save you time and money.
We would recommend contacting us no later than 3 months before your deal ends. This gives us both ample time to properly look into your options and then make the application.
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How much can you remortgage for?
How much you can remortgage for depends on things such as your income, property value and deposit. You may be able to remortgage up to 90% of the current market value of your home, but this will vary depending on your specific circumstances.
It is important to remember that taking out a larger loan than necessary could increase your monthly payments and put you at risk of falling into debt. Make sure to consider all the options carefully before making a decision.
What proof of income is needed for remortgage?
Lenders will ask all applicants to supply proof of their income. This could include payslips, bank statements, or other documents that prove your ability to make monthly payments. It is important to provide accurate and up-to-date documents as this will help speed up the underwriting process.
If you are self-employed, lenders may also ask for evidence of your annual income and any other documents such as CIS payslips or SA302 which provide information about your financial circumstances.
In addition to proof of income, you may need to provide documents such as bank statements or credit reports in order to demonstrate your financial standing. All these documents will help the lender determine the loan amount you are eligible for and whether the repayments will be affordable.
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What options are there if the lender doesn’t offer the full amount?
In making a re-mortgage application you will need to state how much you owe on your existing mortgage, and how much you would like to borrow from the new lender.
All lenders will go through a process called underwriting, which means checking through your financial details to see if you can afford the new loan. If your circumstances have changed since you took out your mortgage then it’s possible that you won’t ‘qualify’ for the new mortgage (even if the amount is the same).
This would be the case if your earnings are now lower than they were, or perhaps you now have more financial obligations each month.
If this happens it may be possible to re-apply with a new lender who is not so strict.
An alternative would be to use some savings as a remortgage deposit, so that you only need the lower amount on offer.
This should be discussed with one of our brokers before making a final decision, but if the mortgage rate on offer is highly competitive then it may be worth it.