What is remortgaging?

Remortgaging is when you change your mortgage to a different lender. However, the term is often incorrectly used to include occasions when you do the following:

Take a further advance

This is where you stay with the same lender, but increase the size of your existing mortgage against growth in the equity of your home. You can also do this at the same time as remortgaging to another lender, providing you meet its criteria.

If you are staying with the same lender, the extra borrowing usually constitutes a separate loan which runs alongside your existing mortgage. In this case, it doesn’t matter if you are tied into a special rate deal with your existing mortgage as you are not redeeming it – you are simply adding to it.

In most cases, you will be able to have a ‘further advance’ on any mortgage within your lender’s existing range, although some lenders will apply their Standard Variable Rate (SVR) to the extra borrowing.

Borrowers should be wary of the effect of having two separate loans secured against one property. This often results in two sets of tie-ins that mature at different times and you will be tied to the lender for the duration of the longest one.

Switching to a different product with your existing lender

This is where you keep your mortgage with the same lender, but switch to a different mortgage product which requires you to sign a ‘deed of variation.’

You will only be able to carry out  a mortgage switch without penalty, if your current deal has come to an end. Then, with some lenders, you will be able to switch to any of their current mortgage offers.

Some lenders, however, hold back some of their cheapest deals exclusively for new borrowers which forces clients wanting a more competitive deal to remortgage with another lender.

Why has remortgaging become so popular?

Shopping around regularly for a new mortgage deal every few years is a relatively recent phenomenon. In the 1970s and 1980s, mortgages were rationed and a deposit was essential. Borrowers tended to stick with the same mortgage for 25 years and most mortgages were on a standard variable rate.

Nowadays, there is far greater choice and availability. According to the Council of Mortgage Lenders (CML), 37 per cent of all lending by value is currently for remortgages and around 75 per cent of all UK borrowers are on fixed rate deals.