There are two types of remortgaging arrangement:
- Remortgaging where the mortgaged asset is switched (relatively uncommon).
- Remortgaging where the mortgagor is switched. This is the most common variety, and is in turn divided into:
- Switching of debtor, or change of mortgage holder. This situation can arise, for instance, if we buy a house that was already mortgaged and wish to take over the mortgage loan. This cuts out the cost of arranging a new mortgage, even though we will not be able to change bank, negotiate the terms or claim possible expenses. According to the Mortgage Law, we must notify the bank at least one month in advance. It will then analyse our risk profile and either accept or turn down our request.
- Switching of creditor, which commonly arises when the mortgage holder decides to change bank, either because the new bank offers better terms (lower interest or fees, more linked products, no abusive clauses, more appealing repayment periods), or allows the borrower to change from variable-rate to fixed-rate, or vice versa, or where the borrower is simply unhappy with their current bank.
- An alternative to remortgaging is to take out a new mortgage loan with more favourable terms and conditions, perhaps even with another bank. But be wary, because the costs associated with cancellation are usually higher than those of remortgaging.
In any case, before subrogating we would be well advised to find out all the options available on the market; a mortgage simulator is always a good option.
Differences between remortgaging and cancellation
Remortgaging differs from cancellation in that the mortgage loan persists with the former, with only the interest rate or term changing. All other terms and conditions remain intact, although some banks may allow us to tag on additional financing capital.
Cancellation, meanwhile, implies a new loan and the negotiation of all terms and conditions. Our advice, therefore, is to remortgage rather than cancel, especially over the first few years of the loan, when the interest is higher than the principal we repay.