You could save hundreds: what is remortgaging and how does it work?

Applying for a mortgage can feel like a massive slog and so once it’s done the temptation is to never think about it again.

But there are many reasons why you might decide to remortgage in the future.

Mortgage borrowing is usually the biggest debt any of us have, which means that making sure you are on the best rate possible can save you hundreds of pounds a month.

A few percentage points really make a difference to the monthly cost so understanding how to remortgage is essential.

If you are remortgaging then you are applying for a new mortgage on a property you already own.

It’s important to know that this is almost never compulsory; when you apply for a mortgage you apply for a product that will continue to run until you have cleared the debt and own your home outright.

You might apply for a new mortgage product through your existing lender or go through a broker or adviser to find the best deal on the market for your specific circumstances.

That then means applying to an entirely new lender who will repay your existing mortgage provider and take on the debt themselves.

Checking the market for deals

Remortaging is a big job and will involve quite a lot of paperwork even if you’re just switching deals with your current lender.

If you’re going to go to all that trouble then it makes sense to find the best deal available.

You can do some of that yourself by looking at the best buy tables or browsing rates via a comparison website and lenders’ own websites.

However, you may find it’s better to go through a mortgage adviser or broker, particularly if you have slightly unusual circumstances such as being a contractor rather than an employee.

They will understand what kind of applicant different lenders want, which will mean that you are more likely to have your remortgage application approved.

What to watch out for

If you’re considering remortgaging then there are a few things to watch out for.

Some mortgages tie you in with early redemption charges, meaning that if you move before the set period is up you will pay a hefty fee.

You should check whether you would be hit with a fee before beginning remortgaging.

If the rate you can switch to is much better then it might be worth stumping up the fee and moving.

You need to do the sums and work out what is best for your finances and your specific circumstances.

Another thing to check is whether there are any application fees on the product you want to remortgage to.

Fees are quite common, particularly among the most competitive mortgage products, and they are often between £99 and £999 although that varies.

Remortgaging may still be the best option but you need to look at the overall cost of the loan and not just the headline rate.