What Happens When You Remortgage Your Home?

Remortgaging replaces an existing home loan with a new one, allowing homeowners to adjust borrowing terms. This process can occur with a new lender or by securing different terms with the current lender. It helps individuals adapt their mortgage to changing financial circumstances or market conditions, such as securing a lower interest rate or changing payment schedules. This adjustment can also lead to changes in the loan amount, all without requiring a change in residence.

Initial Steps in Remortgaging

Before applying for a remortgage, homeowners gather comprehensive financial and property details. This initial phase involves collecting personal income documentation, such as W-2 forms and recent pay stubs, typically covering the past two years of employment and the most recent 30 days of earnings. For self-employed individuals, providing tax returns from the previous two years, including all schedules, is necessary. Alongside income verification, individuals compile statements for all bank, investment, and retirement accounts to demonstrate asset liquidity and reserves.

Homeowners then collect statements for existing debts, including the current mortgage, home equity loans, student loans, car loans, and credit card accounts. They also review their credit report to understand their credit score and address any inaccuracies. Simultaneously, property information is compiled, including the current mortgage balance and obtaining initial estimates of the home’s value.

Evaluating suitable loan terms, such as whether a fixed-rate or adjustable-rate mortgage is more appropriate, and determining the desired loan term length, is an important consideration. This assessment helps align the new mortgage with long-term financial goals. Completing this thorough review of personal finances and property details before engaging with a lender helps streamline the subsequent application process.

The Remortgage Application Process

After initial preparations, the formal remortgage application is submitted to a chosen lender. The evaluation begins with the appraisal process, where a licensed and independent appraiser provides an estimate of the property’s current market value. This valuation ensures the property serves as adequate collateral for the new loan.

The appraiser visits the home to assess its condition, size, and features, also examining comparable properties recently sold in the area. Following the on-site inspection, the appraiser compiles a detailed report for the lender. Concurrently, the application proceeds to the underwriting stage, where a mortgage underwriter reviews the submitted financial information and credit history. The underwriter’s role is to assess the level of risk associated with approving the loan, verifying income, assets, and employment to confirm the borrower’s ability to repay the new mortgage.

This review by the underwriter involves scrutinizing credit reports for payment history and outstanding debts, and examining financial documents to ensure consistency and accuracy. The underwriter also considers the property details provided in the appraisal report. Upon satisfactory review, the lender issues a conditional approval, which may include specific conditions or requests for additional documentation that the homeowner must fulfill before final approval can be granted.

Closing and Transitioning to Your New Mortgage

The remortgage process concludes at the closing appointment, where all parties finalize the new loan agreement. Before this meeting, the lender provides a Closing Disclosure (CD), a five-page document detailing the final loan terms, projected monthly payments, and all associated costs. Borrowers are legally entitled to receive this document at least three business days prior to closing, allowing time for thorough review and comparison with the initial Loan Estimate.

During the closing, the homeowner signs various legal documents that formalize the new mortgage. These include the promissory note, a legally binding promise to repay the borrowed amount according to the specified terms, including the interest rate and payment schedule. Additionally, the new mortgage or deed of trust is signed, establishing the property as collateral for the loan and outlining the lender’s rights in the event of default.

Upon the successful signing of all documents, the funds from the new mortgage are disbursed, and these proceeds are used to pay off the existing mortgage. Subsequently, the new mortgage is recorded with the relevant county office, establishing a public record of the new lien on the property. This recording signifies the legal transition from the previous mortgage arrangement to the new one, initiating the new payment schedule and terms for the homeowner.

Understanding Remortgaging Costs

Remortgaging involves various fees and expenses, known as closing costs, which typically range from 2% to 6% of the new loan amount. These costs are categorized into lender fees, third-party fees, and prepaid expenses. Lender fees cover loan processing and may include an origination fee (often 1% to 1.5% of the loan), an underwriting fee ($300 to $900), and an application fee ($0 to $500).

Third-party fees are charged by external service providers involved in the transaction. Common examples include an appraisal fee ($300 to $1,000) for property valuation. Title insurance and title search fees ($300 to $2,000) ensure clear ownership. Other costs may encompass attorney fees ($500 to $1,000), recording fees ($25 to $250) to register the new mortgage, and a credit report fee ($10 to $100).

Prepaid expenses are collected at closing for future homeownership costs. These often include several months of property taxes (typically 2 to 6 months) and homeowner’s insurance premiums, which might involve paying up to a full year’s premium upfront. Prepaid interest covers interest accruing from the closing date through the end of that month. These amounts are typically placed into an escrow account. Homeowners should also be aware of potential early repayment charges from their existing mortgage, which can be 1% to 5% of the remaining balance if refinancing early.