Can remortgaging make a mortgage cheaper?

Are you paying more than you need to on your mortgage?

Many mortgage borrowers don’t realise they could save substantial money by remortgaging. Whether you’re nearing the end of your current mortgage deal or simply wondering if you could get a better rate, this guide will walk you through how remortgaging might help reduce your monthly payments and overall costs.

We’ll explore when remortgaging makes financial sense, how much you might save, and what potential costs to consider before making the switch. By the end, you’ll have a clear picture of whether remortgaging could make your mortgage cheaper.

What is Remortgaging and How Does it Work?

Remortgaging simply means switching your existing mortgage to a new deal, with a new lender, while staying in the same property.

It’s essentially replacing your current mortgage with a new one that better suits your needs or offers better value.

The process works like this: you apply for a new mortgage, and when approved, the new lender pays off your existing mortgage in full. Your home continues to be security for the loan, but you’ll now make payments under the new terms and conditions.

This differs from a product transfer, which involves switching to a new deal with your existing lender without all the legal work of a full remortgage.

Product transfers can be quicker and involve fewer fees, but might not always offer the best rates available on the wider market.

When Remortgaging Could Save You Money

There are several scenarios where remortgaging could lead to significant savings:

When your fixed or discounted rate is ending

Most mortgages start with an introductory period (usually 2-5 years) offering lower rates.

Once this ends, you’ll automatically move to your lender’s standard variable rate (SVR), which is almost always higher. Homeowners who don’t remortgage at this point often see their monthly payments jump up considerably.

For example, if your £475,000 mortgage moves from a 3.5% fixed rate to an SVR of 6.5%, your monthly payments could increase by over £700 a month – that’s £8,400 a year!

When your home’s value has increased

Mortgage rates are partly determined by your loan-to-value ratio (LTV) – the amount you’re borrowing compared to your property’s value. If your property has increased in value since you took out your mortgage, your LTV will have decreased.

Let’s say you borrowed £475,000 against a £550,000 house (86% LTV). If your property is now worth £650,000, your LTV drops to 73%. This could give you access to much better mortgage rates, potentially saving hundreds of pounds each month.

When interest rates have fallen

If overall interest rates have dropped since you took out your mortgage, remortgaging could help you benefit from these lower rates. Even a seemingly small difference of 0.5% on a large mortgage can lead to substantial savings.

When your credit score has improved

If your credit score has improved significantly since taking out your current mortgage, you might now qualify for better rates than you could access before. This is particularly true if you had credit issues when you originally got your mortgage.

When consolidating high-interest debts

Sometimes remortgaging to consolidate high-interest debts like credit cards or personal loans can reduce your overall monthly outgoings. However, this approach needs careful consideration, as you’re potentially extending short-term debt over a much longer period.

How Much Could You Save by Remortgaging?

The potential savings from remortgaging can be substantial, especially for larger mortgages.

Let’s look at a real example with a £475,000 mortgage:

Imagine you’re currently paying your lender’s SVR of 6.49%. On a 25-year repayment mortgage, your monthly payment would be approximately £3,196.

If you remortgage to a 5-year fixed rate of 4.89%, your monthly payment would drop to around £2,735 – saving you £461 every month or £5,532 per year.

Over the 5-year fixed term, that adds up to £27,660 in savings!

The savings can vary widely depending on:

The difference between your current rate and the new rate
The size of your mortgage
Your loan to value
The term remaining on your mortgage
Any fees associated with remortgaging

It’s worth noting that even smaller rate differences can yield significant savings. A reduction of just 0.5% on a £475,000 mortgage could save you around £140 per month or £1,680 annually.

Best Times to Consider Remortgaging

Timing your remortgage right can make a big difference to how much you’ll save:

3-6 months before your current deal ends

Don’t wait until your deal has actually expired. Most mortgage offers are valid for 3-6 months, so you can apply early and have everything ready to switch as soon as your current deal ends, avoiding any time on the higher SVR.

James, a homeowner in Leeds, explains: “I started looking into remortgaging options about 5 months before my fixed rate ended. This gave me plenty of time to compare deals and get everything sorted, so I switched seamlessly without a single payment at the higher rate.”

After completing significant home improvements

If you’ve added an extension, converted your loft, or made other substantial improvements that have increased your property’s value, it might be worth getting a new valuation and remortgaging to access better rates at a lower LTV.

Following changes to the Bank of England base rate

When the Bank of England cuts its base rate, mortgage rates often follow. If there’s been a significant drop in the base rate since you took out your mortgage, it might be worth checking if you could benefit, even if you’re still within your current deal period (though watch out for early repayment charges).

When your financial situation has changed for the better

If you’ve had a significant salary increase, paid off other debts, or otherwise improved your financial situation, lenders may now view you as a lower risk, potentially offering you more competitive rates.

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Important Costs to Consider

While remortgaging can save money, there are costs involved that you need to factor into your calculations:

Early repayment charges (ERCs)

If you’re still within your initial deal period, your current lender might charge an early repayment fee. These can be substantial – often 1-5% of your outstanding mortgage balance. On a £475,000 mortgage, that could mean £4,750-£23,750, which would wipe out any immediate savings.

However, if you’re nearing the end of your deal, the ERC might be lower and worth paying to secure a better rate sooner.

New lender’s arrangement fees

Many competitive mortgage deals come with arrangement fees, which can range from a few hundred pounds to around £2,000. Some lenders offer fee-free options, but these might come with slightly higher interest rates.

You’ll need to weigh up whether paying a fee for a lower rate works out cheaper over the term of your new deal. For larger mortgages, it’s often worth paying a fee to secure a lower rate.

Valuation fees

Your new lender will want to value your property. Some lenders offer free valuations as part of their remortgage package, but others may charge £200-£500 depending on your property’s value.

Legal fees

Remortgaging involves legal work to transfer the charge over your property from one lender to another. Again, many lenders offer free legal work for remortgages, but if not, budget around £300-£500.

To work out if remortgaging makes financial sense, add up all these potential costs and compare them with your projected savings over the new deal period.

For example, if remortgaging would save you £200 per month but cost £2,000 in fees, you’d break even after 10 months. Any savings after that would be pure benefit.

Potential Challenges

Not everyone will find it easy to remortgage.

Several factors could make the process more challenging:

Changes in lending criteria

Mortgage lending rules change over time. The affordability checks that lenders now perform are often stricter than they were in the past, which means some borrowers might find they don’t qualify for the same level of borrowing they previously did.

Property value decreases

If your property’s value has fallen since you took out your mortgage, your LTV will have increased, potentially pushing you into a higher risk category with fewer available deals and higher rates.

Income or employment changes

If your income has decreased or you’ve changed from being employed to self-employed, you might find it harder to meet lenders’ criteria. Most lenders want to see at least 2 years of accounts for self-employed applicants.

New affordability assessments

Even if your income hasn’t changed, lenders now stress-test your ability to repay at higher interest rates, typically around 3% above the deal rate. This is to ensure you could still afford payments if rates increase.

Credit score issues

If your credit score has worsened since taking out your original mortgage, perhaps due to missed payments or increased debt, this could affect your ability to remortgage at competitive rates.

Prepare for a Successful Remortgage

Preparation is key to a smooth remortgage process:

Start early – 3-6 months before your current deal ends

This gives you time to gather documents, improve your credit score if needed, and compare deals thoroughly. It also ensures you don’t end up on your lender’s SVR while waiting for your new mortgage to complete.

Get your paperwork in order

You’ll typically need:

Last 3 months’ bank statements
Last 3 months’ payslips (or 2-3 years of accounts if self-employed)
Proof of any bonuses or commissions
Latest P60
ID documents (passport or driving licence)
Proof of address (utility bills, council tax statements)

Check your credit report

Review your credit file with all three main UK credit reference agencies: Experian, Equifax, and TransUnion. Make sure there are no errors and take steps to improve your score if possible.

Calculate your loan-to-value ratio

Work out your current LTV by dividing your outstanding mortgage balance by your property’s estimated current value and multiplying by 100. This will give you an idea of which deals you might qualify for.

Consider using a mortgage broker

Mortgage brokers have access to deals across the market, including some that aren’t available directly to consumers. They can also advise on which lenders are most likely to accept your application based on your circumstances.

How to Remortgage for Home Improvements

Home improvements can be expensive so many owners look to borrow the money they need. Find out how remortgaging could help you create your perfect home without breaking the bank.

Next Steps

Remortgaging can indeed make your mortgage cheaper, potentially saving you thousands of pounds over the life of your loan. The biggest savings usually come from avoiding your lender’s standard variable rate at the end of your initial deal period.

However, it’s not always the right choice for everyone.

You need to carefully weigh the potential savings against any costs involved and consider your personal circumstances and future plans.

If you’re approaching the end of your current mortgage deal or think you might benefit from remortgaging for any of the reasons we’ve discussed, it’s worth talking to a mortgage broker. They can provide personalised advice based on your specific situation and help you understand the remortgage process.

Remember, a mortgage is likely to be your biggest financial commitment, so taking the time to review it regularly and ensure you’re not paying more than you need to makes good financial sense.

Want to find out if remortgaging could save you money? Contact our recommended mortgage brokers today for expert advice tailored to your circumstances.

Frequently Asked Questions

The ideal time to start the process is 3-6 months before your current fixed or discounted rate ends.

This gives you enough time to find and arrange a new deal without slipping onto your lender’s higher standard variable rate. You might also consider remortgaging after making significant home improvements or if your financial situation has improved substantially.

No, you don’t need a cash deposit to remortgage. Instead, the equity in your property (the portion you own outright) acts as your ‘deposit’. The more equity you have, the lower your loan-to-value ratio will be, potentially giving you access to better rates.

However, if you have some cash savings, you could use some of this to reduce your mortgage before applying to a new lender.

Yes, but it might be more challenging. Most lenders want to see 2-3 years of accounts or tax returns to verify your income. Using a mortgage broker can be particularly valuable for self-employed applicants, as they’ll know which lenders have more flexible criteria for self-employed borrowers.

It’s possible, but your options may be limited.

If your credit score has worsened since taking out your original mortgage, you might not qualify for the most competitive rates. Some specialist lenders cater to borrowers with credit issues, but rates are typically higher. A broker can help you find the best available options.

A typical remortgage takes 4-8 weeks from application to completion. However, if you start the process early (3-6 months before your current deal ends), you can time it to switch seamlessly when your existing rate expires. Factor in time for gathering documents, getting a property valuation, and completing legal work.

Yes, you can remortgage to release equity, whether for home improvements, debt consolidation, or other purposes. Most lenders will allow you to borrow up to 90% of your property’s value (sometimes more), subject to affordability checks. Remember that borrowing more will increase your monthly payments unless you extend the term.