Can I Remortgage Early? Here’s What to Consider

Remortgaging early involves switching your existing mortgage to a new lender or a different product with your current lender before the current mortgage term concludes. Homeowners may seek more favorable interest rates, altered payment structures, or access to home equity. This article explores the key considerations for undertaking an early remortgage.

Understanding Early Remortgaging Eligibility

The ability to remortgage early hinges on several factors, beginning with the terms of your current mortgage. Many mortgage products, particularly fixed or tracker rate deals, include an early repayment charge (ERC) that applies if you pay off the loan before the agreed-upon term ends. This charge compensates the lender for lost interest income due to early loan termination.

New lenders will assess your financial profile to determine eligibility. A strong credit score, typically 620 or higher for conventional loans, is preferred as it indicates a reliable repayment history. Lenders evaluate your income and affordability by examining your debt-to-income (DTI) ratio, which compares your total monthly debt payments to your gross monthly income. Most lenders prefer a DTI ratio of 36% or below, though some may approve loans with ratios up to 43% or 50% for certain government-backed loans.

The loan-to-value (LTV) ratio also plays a significant role in eligibility and the rates offered. LTV represents the ratio of your outstanding mortgage balance to the current market value of your home. A lower LTV, such as 80% or less, allows access to more favorable interest rates and avoids private mortgage insurance (PMI). Property type can also influence eligibility, as some lenders may have specific requirements or restrictions for certain types of homes.

Financial Considerations for Early Remortgaging

Remortgaging early involves various costs that can impact the overall financial benefit. A primary expense is the early repayment charge (ERC), typically a percentage of your outstanding mortgage balance, usually ranging from 1% to 5%. This charge can amount to thousands of dollars, and some lenders may reduce the percentage as you progress through your original mortgage term.

New mortgage products often come with their own set of fees. An arrangement or product fee, charged by the new lender for setting up the mortgage, can range from $0 to over $2,000, sometimes calculated as a percentage of the loan amount. Borrowers can pay this fee upfront or add it to the loan, though adding it to the loan means paying interest on it over the mortgage term.

Valuation fees cover the expense for the new lender to assess your property’s current market value. These fees can range from $100 to $1,500, varying based on the property’s size, location, and valuation type. Some lenders may offer free valuations as an incentive. Legal fees, also known as conveyancing fees, are incurred for the solicitor’s work in handling the legal transfer of the mortgage. These costs typically fall within a range of $500 to $1,500, though some lenders might offer free legal services.

Information and Documentation Required

Preparing for an early remortgage application necessitates gathering personal and financial documents. Lenders require proof of identity, such as a driver’s license or passport, along with proof of address, often recent utility bills or bank statements.

Income verification requires recent pay stubs, W-2 forms from the last two years, and potentially tax returns from the previous two years, especially if self-employed or with commission income. Lenders request bank statements from checking and savings accounts, usually for the last two months. Statements for investment accounts, retirement funds, and other assets are also needed.

Details regarding your existing mortgage are essential, including your current mortgage statement, the original offer letter, and information about the outstanding balance and current interest rate. You will also need to provide property information, such as the full address and details if it is a leasehold property. Information on other outstanding debts, such as credit card balances, auto loans, or student loans, is required.

The Early Remortgage Application Journey

Once all necessary information and documents are gathered, the early remortgage application begins. The first step involves researching and comparing new mortgage products from various lenders, often with the assistance of a mortgage broker. This comparison process helps identify the most suitable interest rates and terms for your financial situation.

After selecting a preferred deal, you will submit your application to the new lender. This submission includes all personal, income, asset, and existing mortgage documentation. The lender then initiates its due diligence process, which includes ordering a valuation of your property to confirm its market value.

Following a successful valuation, the legal work, or conveyancing, commences. A solicitor or conveyancer handles the legal aspects of transferring the mortgage, including checking the property’s title, liaising with your existing lender to arrange the payoff of your old mortgage, and registering the new mortgage against your property. Once all legal checks are complete, a formal mortgage offer will be issued. The final stage is completion, where new mortgage funds are transferred, your old mortgage is paid off, and the new mortgage takes effect, finalizing your early remortgage.