Can You Remortgage Your House? Process & Costs

Remortgaging involves replacing an existing home loan with a new one, often from a different lender or with updated terms. This process uses the same property as security for the new financing. Homeowners consider this option to adjust their financial arrangements, aiming for more favorable conditions. It essentially means taking out a new mortgage to pay off your old one.

Reasons to Remortgage

Homeowners explore remortgaging for various financial benefits, seeking to optimize their housing expenses or access capital.

Lower Interest Rates

One common motivation is securing a lower interest rate, which can significantly reduce monthly payments and the total interest paid over the loan term. This is particularly appealing when market rates decline or a homeowner’s credit profile improves.

Adjust Loan Term

Adjusting the loan term is another frequent reason, allowing homeowners to either shorten the repayment period to pay off the mortgage faster, or extend it to lower monthly installments for greater financial flexibility.

Consolidate Debt

Remortgaging can also serve to consolidate higher-interest debts, such as credit card balances or personal loans, into a single, lower-interest mortgage payment.

Access Home Equity

Accessing home equity is a compelling reason for many, enabling homeowners to convert a portion of their home’s built-up value into cash. This cash can fund large expenses like home renovations, educational costs, or other substantial investments.

Switch Loan Types

Additionally, homeowners might remortgage to switch loan types, for instance, moving from an adjustable-rate mortgage to a stable fixed-rate mortgage to avoid future interest rate fluctuations.

Qualifying for a Remortgage

Homeowners must meet specific criteria and prepare necessary documentation that lenders assess. A strong credit score is a primary consideration, as it indicates a borrower’s reliability in managing financial obligations. A score of 620 or higher is generally expected, with better scores typically leading to more competitive interest rates.

The debt-to-income (DTI) ratio is another important factor, comparing monthly debt payments to gross monthly income. Lenders generally prefer a DTI ratio below 36%, though some programs may accept ratios up to 43% or even 50% under certain conditions.

Home equity plays a substantial role, especially for cash-out refinances, where lenders typically require at least 20% equity to be maintained after the new loan is issued. For conventional cash-out refinances, borrowers can often take out up to 80% of their home’s value, while some VA loans may allow borrowing up to 100% of the home’s value, though lenders often set their own limits, such as 90%.

Lenders also verify income and employment stability. This typically involves providing proof of steady income over a period, such as two years of consistent employment. Homeowners will need to gather documents including recent pay stubs, W-2 forms for the past two years, and tax returns if self-employed. Bank statements and current mortgage statements are also required.

The Remortgage Application Process

The remortgage application process begins with finding a suitable lender. Comparing offers from various financial institutions is an important initial step to secure the most favorable terms. Homeowners can often receive an “Agreement in Principle” or “Approval in Principle,” which provides an early indication of how much a lender might be willing to lend without a full credit check.

After selecting a lender, the formal application is submitted, accompanied by all the previously gathered financial documents. A crucial part of this stage involves an appraisal of the property to determine its current market value, which directly impacts the loan-to-value ratio for the new mortgage.

Following the appraisal, the application moves into underwriting, where the lender verifies all submitted information, assesses financial risk, and confirms the borrower meets all lending guidelines. If the underwriting is successful, the lender issues a conditional approval.

The final stage is closing, where all parties sign the loan documents and the new mortgage replaces the old one. Funds are disbursed to pay off the existing mortgage. The entire process, from application to closing, generally takes about four to eight weeks, though it can extend to two or three months, particularly when switching lenders.

Understanding Remortgaging Costs

Remortgaging involves various fees and expenses, collectively known as closing costs. These costs are paid at the time of closing and can typically range from 2% to 5% of the new loan amount.

Specific fees commonly encountered include application fees, appraisal fees, and credit report fees. An origination fee, representing the lender’s cost for processing the loan, is often a percentage of the loan amount. Title insurance and search fees are incurred to ensure clear ownership of the property. Attorney fees may apply for legal services, and recording fees register the new mortgage with local government authorities.

Additionally, homeowners must consider prepayment penalties from their existing mortgage. This is a fee charged by the current lender if the mortgage is paid off early. Not all mortgages include these penalties, but it is important to review the original loan agreement. Factoring all these costs into the decision-making process is important to determine if the savings from a new mortgage outweigh the expenses of remortgaging.