In this latest post, aimed at helping borrowers better understand mortgage terminology, we look at what remortgaging means, how it differs from porting a mortgage and when homeowners are best to consider remortgaging
Also, if you’re interested in our recent series on later life lending, read on to find out how you might be affected if you need to remortgage and are over 50.
What does remortgaging mean?
Remortgaging means staying in the same property but applying for a new mortgage product, either with your existing lender (commonly known as a product switch or transfer) or with a new provider.
A large proportion of all mortgage applications undertaken each year are actually remortgages, usually when a homeowner’s existing deal has come to an end.
How is remortgaging different from porting?
The two terms are often used interchangeably but there are distinct differences.
Porting is where a homeowner takes their existing mortgage on their current property and ‘ports’ or moves it to a new home.
Remortgaging is when the homeowner is staying in their existing home but they require a new deal – usually after their mortgage product expires.
When is the right time to remortgage?
Although some lenders offer mortgage products for 10+ years, most deals last two, three or five years. This offers the homeowner an agreement on the interest rate payable for a set period of time, after which they are generally moved to their lender’s revert-to rate or Standard Variable Rate (SVR), typically at a higher rate than they were paying before.
Homeowners should be aware when their mortgage product deal comes to an end and consider whether they need to arrange a new mortgage deal to replace it, either with their existing lender (a product switch), or to an entirely new lender (a remortgage).
Homeowners may also consider remortgaging even if they are midway through their existing deal if they want to:
- secure a better deal
- move from a fixed rate to a variable rate or vice versa
- move from interest only to capital repayments or vice verca
- borrow more or borrow less
- change their terms such as being allowed to make overpayments
However, it’s important to be aware that lenders will generally apply an early repayment charge if a homeowner wants to exit a mortgage deal before the date originally agreed, and there will most likely be fees involved in a new application.
Under what circumstances should a homeowner not remortgage?
Remortgaging may not be appropriate if a homeowner wants to move house in the near future or their circumstances are about to change and they do not wish to be tied into a deal. Homeowners may be wary of remortgaging if they have a very small loan amount left, if they have very little equity in their home, if they have large repayment charges on their existing mortgage, or their financial situation has changed for the worse.
Does a lender still check that the homeowner can afford a remortgage?
When remortgaging to a new lender this is treated as a new mortgage application, so the mortgage lender will need to understand whether a homeowner’s personal or financial situation has changed and made sure that they can afford the remortgage now and should their circumstances, or interest rates, change in the future. To do that they will undertake standard credit checks and request relevant documents that prove earnings and outgoings.
Homeowners who carry out a product switch with their existing mortgage lender may find there is slightly less paperwork because the lender may not require new proof of identity documentation, but that in itself is not a reason to stay with the same lender – borrowers should carefully weigh up all pros and cons involved in swapping their mortgage deal.
Does the lender need to approve the property?
Yes. The mortgage lender will need to approve and value the property so it is important to select a provider whose criteria includes the property type. For example, some lenders may not approve a mortgage for a listed property, a new build, or a home of non-standard construction.
The homeowner will need to cover the valuation fees although some lenders, such as Suffolk Building Society, may offer free valuations for remortgage applications in certain circumstances.
Can over 50s, people in later life, or retirement, apply for a remortgage?
It all comes down to the mortgage lender’s criteria. Increasing numbers of mortgage providers have increased their upper age limit for mortgage lending and in many cases removed it altogether (including Suffolk Building Society), so there are plenty of lenders who will consider people in their 50s, 60s, 70s and beyond.
That said, it’s not just the age of the applicant that is taken into account but also the age they will be when the mortgage ends – so, the length of the mortgage term itself is also a determining factor. While a lender may be happy to approve a remortgage application for someone in their 80s borrowing over a 10 year term, you may find some reluctant to lend to the same person over a 30 year term.
Older borrowers may find it beneficial to opt for a lender that operates a manual underwriting system, so their circumstances will be judged on an individual basis rather than relying on a computer algorithm. An experienced mortgage intermediary may also be able to help find a prospective lender, so it is worth considering seeking an independent adviser to help with a later life remortgage application.
How early can a homeowner apply for a remortgage?
Mortgage lenders are obliged to give their customers good notice about when their current deal ends, giving the homeowner plenty of time to arrange a new deal if required.
So even if a homeowner has time left on their current mortgage, they can start the ball rolling with a remortgage application to ensure the new deal begins as soon as the current deal ends.
How can a mortgage holder apply to remortgage?
A homeowner can approach their existing lender, or new lender, directly or seek the advice of a mortgage broker or intermediary to do the work for them. As it’s really important to do the maths and calculate which new remortgage deal is the most appropriate, factoring in the rate itself, fees and charges, plus the terms of the mortgage, it can sometimes be beneficial to get the support of an experienced mortgage expert.
Remortgaging and porting are often used as interchangeable terms but in fact, they are quite different. Having an understanding of the differences between the two will help homeowners make more informed financial decisions.