What is a remortgage?

A remortgage is the posh term for changing lenders on your existing property.

Many people think of a mortgage as some kind of financial prison sentence, but just because you've taken out a mortgage with one company, it doesn't mean you have to stick with it until the loan is paid off. You are free as a consumer to shop around for the next best deal. 

Why should I go for it?

There are many reasons why you might consider moving your mortgage without moving home. For instance, you may want to take advantage of new and cheaper mortgage options that weren't on offer when you bought your home, such as a better fixed rate deal. If you feel you're paying excessive rates of interest compared to rival lenders, then a remortgage may save on your monthly payments.

Perhaps you want to release part of the capital built up in your property, e.g. to carry out home improvements. You can apply for this 'further advance' with your current lender, but may want to get a better deal by remortgaging to a different lender at the same time. Or maybe you are just dissatisfied with your current lender and its service and want to try a different institution.

When leaving one lender, you'll obviously have to repay the sum you've borrowed, plus interest.  There may also be early repayment charges to pay if you haven't yet arrived at the end of your initial deal. If this is the case, be careful to do your sums to see if it's worth stumping up the charge versus the interest you will save by switching.

Take a breath

But before you pack your bags and leave your lender, ask your current mortgage provider what it could offer. For example, you could ask for a review based on good behaviour (i.e. you've proven you can keep up payments) and want to renegotiate a better deal.

Bear in mind, also, that since the credit crunch it's not so easy to switch between lenders as and when you feel like it. The days when all banks and building societies grab mortgage business with both hands are gone - now they will want to see at least 15% equity in the home, a stable income, and good credit history before accepting you as a new borrower.

Tell me the pitfalls

Much depends on interest rates. You always have to be sure that you can meet repayments whatever the economic climate. With interest rates running low borrowing may seem attractive right now, but what if they start to inch up? If you fail to make payments you could lose your house and be left wishing that you'd read the small print.

Check the details of your existing mortgage. Is there a redemption penalty? If there is, and it's large, it may wipe out the benefits of remortgaging. There is also likely to be a valuation fee to pay from the new lender and a mortgage arrangement fee, which can be around £1000.

Also, mortgage brokers will often charge a fee on top of your new deal that gets added to your new loan, pushing the price up and making it less of a bargain. So check before you commit to anything.

I've done the sums. How do I go for it?

Begin by checking the terms of your current mortgage. Some deals lock you in for a certain period, so you need to find out if you're able to bail out without being hit with a penalty of any kind. Next, look for a lender that offers your kind of terms. If you're unsure where to start, seek advice from an independent mortgage broker.

Five steps to moving your mortgage:

1. Contact a Financial Advisor to discuss the different mortgage options and decide on the option best for you
2. Fill out the new mortgage application form and sign it
3. The mortgage lender will arrange for a surveyor to visit your property. At around the same time you should instruct a solicitor to commence the legal work involved in your remortgage
4. The mortgage lender will issue a formal mortgage offer with the details of the mortgage. Soon afterwards the legal paperwork is completed by the solicitor
5. Your existing mortgage is paid off and your new mortgage starts

Updated: 25/05/2010