The process of completing a remortgage, also known as mortgage refinancing, is a financial move that many homeowners consider at some point during the life of their loan. This can be a shrewd step, but only when the timing is right.
Mortgage refinancing involves taking out a new loan to replace an existing one in order to get a better deal. Lower interest rates are one of the most commonly cited reasons why people refinance their home loans, and this can make a lot of sense. Switching to a lower interest rate can save you thousands, and sometimes tens of thousands, of pounds over the life of your loan.
Refinancing can help with many things, but it is important to know when and why it works. You also need to ensure that it is the right step for your personal circumstances. In this blog, we look at when refinancing is a suitable move, how to refinance your mortgage, what the potential benefits are and some key considerations you need to be aware of.
What Is Mortgage Refinancing?
Mortgage refinancing is when a homeowner obtains a new mortgage to replace an existing one, usually with different terms. Homeowners usually refinance to obtain a lower interest rate, reduce monthly payments, adjust the loan term or release equity from the property. Refinancing is not a blanket solution. Whether it is right for you will depend upon a number of personal and financial factors.
When Does It Make Sense to Refinance a Mortgage?
Here are the scenarios where it could make sense to think about refinancing your mortgage:
When interest rates have fallen
The most common reason for refinancing is to take advantage of lower interest rates. If mortgage rates in the UK have fallen below your existing rate, refinancing allows you to benefit from this drop and secure a lower interest rate. This can help you save thousands of pounds during your mortgage term.
Imagine that your current fixed deal is at 4.5% and it is coming to an end, and comparable rates have since fallen to 3.2%. On a £200,000 repayment mortgage over 25 years, that is the difference between roughly £1,112 and £969 a month, a saving of around £140 a month and several thousand pounds over a five-year fix.
However, there are things you need to consider before you dive into the process. You will need to figure out how much you will save in the long term to make sure any related costs are worth it. These expenses can include arrangement fees, valuation and legal costs, and any early repayment charge on your existing deal. A repayment calculator can help you identify any potential effect on payments and savings.
Try our free refinance mortgage calculator tool.
When you want to shorten your loan term
Another common reason for refinancing is to shorten your mortgage term. If you can afford to pay more each month, moving from a 25-year mortgage to a 20-year mortgage for example can mean paying off your loan more quickly. This has many benefits:
- You can pay your mortgage off sooner.
- You could save thousands in interest over the lifespan of the loan.
- Although your monthly payments might be more expensive, you will not have to wait so long to own your home outright.
- Despite your monthly payments being higher, the overall loan cost will be much lower in the long run.
Converting from a variable rate to a fixed rate mortgage
With variable rate mortgages, the initial interest rate can be lower, however, it can also move with the lender’s standard variable rate or the Bank of England base rate, making your future payments uncertain. If you have a variable rate mortgage and are concerned about interest rates climbing further in the future, refinancing onto a fixed rate mortgage could give you valuable peace of mind.
A fixed rate mortgage locks in your payments so they cannot change throughout the fixed term. This can be highly beneficial if you are prioritising financial certainty, or if you are worried about future interest rate rises.
Releasing equity from your home
If you have had a mortgage for many years and have built equity in your home, refinancing can allow you to release this equity. This is typically accomplished by remortgaging for a larger amount than you currently owe and taking the difference as a lump sum, or by asking your existing lender for a further advance.
This can be helpful if you need money for larger purchases such as home improvements, debt consolidation and even school fees. Make sure you are borrowing more against the equity in your home for a valid reason and think carefully about whether a higher loan amount is in your best long-term interest.
Ways to consolidate debt
One of the options for consolidating high-interest debts is through refinancing. This can help you handle your debt more easily and make it more affordable each month, although spreading unsecured debt over a mortgage term usually means paying more interest in total, and the debt becomes secured on your home. Much of the benefit will be undone if you take on more debt after refinancing, so remain disciplined and avoid doing so. Always seek professional advice, and we recommend speaking with a UK mortgage broker who can walk through the numbers with you.
How Early Should You Start?
If your fixed or discounted deal is about to end, timing matters as much as the rate. When the initial period finishes, most lenders move you onto their standard variable rate, which is usually higher, so your payments can rise from the first month. What happens when a fixed rate ends shows what that handover looks like.
Most lenders let you secure a new deal around six months before your current one ends, and many will let you switch to a better product if one appears before the new mortgage completes. Starting three to six months ahead gives you time to compare lenders, run the numbers and apply without a rush. It also carries little risk if rates move, because you can usually still change course. Leaving it until you are already on the standard variable rate means paying more each month while you wait.
Steps to Refinancing Your Mortgage
There are several steps to take when refinancing your mortgage. Here is a general guide:
- Assess your finances. Review your mortgage and financial situation first. Tools such as a mortgage repayment calculator can help you understand your potential monthly payments and where you could save.
- Research current rates. Compare lenders and mortgage products, and keep an eye on how rates move, as the deals available to you will vary based on credit score, loan-to-value, loan term and other factors.
- Check your credit. Your credit score will affect the interest rates that are available to you. If your score has improved since you initially took out the loan, you might qualify for better rates.
- Calculate costs and savings. Ensure the costs of refinancing (arrangement fees, valuation, legal work and any early repayment charge) do not outweigh the potential savings.
- Apply for your new mortgage. After finding the best refinancing option for your situation, complete your application and provide the necessary documentation.
Conclusion
Choosing to refinance your mortgage can be an effective way to improve your finances, whether you want to lower your interest rate, have debt to consolidate or want to release equity from your home. Nonetheless, you must take your time and think carefully about the costs, the benefits and what your long-term goals are before you come to a decision.
By using tools such as a repayment calculator and keeping an eye on where rates are heading, you can make an informed choice. Talk to an experienced, reputable mortgage adviser about whether refinancing is right for you and make sure all your questions about the implications are answered. Refinancing can provide major benefits and allow you to capitalise on rates, terms and timelines when done for the right reasons, at the right time.
Try our free refinance mortgage calculator tool.
Frequently Asked Questions
When is the right time to start looking at a remortgage?
About six months before your current deal ends, not the week before.
Most lenders will let you lock in a new rate up to six months ahead and the offer sits there waiting for you, so if rates go up in the meantime you have the old one banked, and if they go down you can usually ditch it and take the cheaper one. People leave this far too late. I had a couple ring me in the September with a deal finishing in October and we made it, just, but they had no leverage and no time to sort a valuation problem that cropped up. Give yourself the six months.
What happens if I do nothing when my fixed rate ends?
You roll onto the lender’s standard variable rate, and that is where it gets expensive.
On a £200,000 repayment mortgage over 25 years the difference between a 4.5% fix and a 7.5% SVR is about £366 a month. That is not a rounding error, that is a car payment. The SVR also moves whenever the lender feels like it, so you lose the certainty as well as the money. Every so often someone tells me they were “just going to leave it for a bit”. Do not. A bit turns into a year very easily.
Is a product transfer the same as remortgaging?
No, and it is worth knowing the difference.
A product transfer is switching to a new deal with the lender you already have. No solicitor, no new valuation most of the time, done in a couple of weeks, and it works even if your circumstances have got worse since you took the mortgage out because they are not underwriting you again. A remortgage is moving to a different lender entirely, which means a full application but opens up the whole market. Sometimes the transfer rate is the best one going. Often it is not, and the lender is counting on you not checking. We check.
How much does it cost to remortgage?
Anywhere from nothing to a few thousand pounds, depending on the deal you pick.
A lot of remortgage products come with a free valuation and free legal work, so your only cost is the arrangement fee, and there are fee-free versions of most deals at a slightly higher rate. The thing that really hurts is an early repayment charge if you leave your current deal before it ends. Two per cent on a £250,000 balance is £5,000, and I have seen five per cent in the first year of some fixes. That is why the timing question matters so much. Leave at the end of the deal and the charge disappears.
Can I remortgage to release equity, and how much?
Yes, and it is one of the most common reasons people come to us.
The maths is simple enough. Say your house is worth £350,000 and you owe £180,000. Most lenders will lend up to 80% or 85% of the value for a remortgage that includes capital raising, so at 80% you could borrow up to £280,000 and take £100,000 out. Whether you should is a different question. The lender will want to know what it is for, and the extra borrowing has to pass affordability on your income like any other mortgage. Home improvements and consolidating debt are the usual answers. Funding a business or buying an investment property gets a harder look.
Should I consolidate my credit cards into the mortgage?
Sometimes, but go in with your eyes open.
Moving £20,000 of card debt at 25% onto a mortgage at 4.5% slashes the monthly cost, no argument there. What people miss is that you might now be paying that £20,000 off over twenty years instead of three, which means more interest overall even at the lower rate, and the debt is now secured on your home. Where it works is when the monthly card payments were genuinely unmanageable and consolidating gets someone breathing again. Where it goes wrong is when the cards get run up again a year later. I ask everyone the same thing: what changes so you do not end up back here?
My property has dropped in value. Can I still remortgage?
Usually, but it might cost you.
If your loan-to-value has gone from 75% to 85% because prices fell, you drop into a pricier band of products, and if it has gone above 90% the choice gets thin. A client of mine bought a new-build flat in 2022 and the valuation came back £30,000 lighter last year, which pushed her to 88% and knocked out the rate she wanted. We took a product transfer with her existing lender instead, since they did not need a new valuation, and she avoided the higher band entirely. It is one of the situations where staying put genuinely beats switching.
Speak to a remortgage specialist
Still not sure whether remortgaging is the right move for your finances? We compare your current deal against the whole market, factor in every fee and any early repayment charge, and tell you plainly whether switching, staying put or taking a product transfer with your existing lender leaves you better off. If the numbers do not stack up, we will say so.
UK Mortgage Broker is a whole-of-market broker helping clients throughout the UK and globally to secure funding on UK property. We are directly authorised and regulated by the Financial Conduct Authority.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Call: +44 1628 969 500 Email: info@uk-mortgagebroker.co.uk
Related Pages
- What Happens If You Do Not Remortgage After a Fixed Term? – The cost of drifting onto a standard variable rate and how to avoid it.
- Refinance vs Product Transfer – When staying with your lender beats switching, and when it does not.
- When to Remortgage in a High-Rate Market – Timing a switch when rates are elevated.
- Can You Remortgage With Debt? – How existing borrowing affects approval and what to do about it.
- Residential Mortgages – Whole-of-market advice for main home purchases and remortgages across the UK.