There can come a time when you outgrow your current mortgage simply because it isn’t cost effective or you’d like to raise more money against your home. In this case, you can remortgage your property to find a new, more suitable deal.
FAQs about Remortgaging
- Remortgaging to save money
- Remortgaging to raise money
- Remortgaging to find a better mortgage
- How much does a remortgage cost?
- How much could I borrow?
- The remortgage application process
- Remortgaging to pay off debts
- Remortgaging for home improvements
- Remortgaging to release equity/raise capital
- Remortgaging a help to buy property
It’s all about finding a mortgage with a better rate of interest. When you take out a new mortgage, you’ll typically receive an introductory deal, which will offer a fixed, discounted or tracker rate for the first few years of the mortgage, before reverting to the lender’s standard variable rate. These introductory deals typically last for between two and five years, after which point, you’ll normally be able to find a better deal elsewhere.
So, when your introductory period ends, use the annual percentage rate (APR) as a measure to compare your deal with the mortgages offered by other lenders. However, it’s important not to only look at the headline rate. You should also factor in the costs and fees associated with moving your mortgage elsewhere.
You can use the monies from a remortgage to increase the value in your home and, as long as you can afford the new repayments, this can be an effective method of raising extra capital for home improvements. This type of remortgage is also commonly used to consolidate debts, but you should seek expert advice before you use a remortgage to do this.
Sometimes a remortgage is the right thing to do because your circumstances have changed and your current mortgage is no longer the most appropriate mortgage for you. For example, you might be starting a family and want the predictability of a fixed-rate mortgage rather than a tracker. Alternatively, you might be earning more money and decide you want to make overpayments on the mortgage without a penalty.
A remortgage may offer you better value in the long run, but switching your mortgage provider can cost in excess of £1,000, so it’s essential you factor this into your calculations. The costs of remortgaging include:
- Your current lender’s fees – Check whether your current mortgage has an early repayment charge or exit fee as this will add to the costs of remortgaging.
- Fees charged by your new lender – You could be charged a number of fees, including a booking fee, reservation fee, valuation fee and a fee for releasing the funds.
- Legal fees – This will cover the cost of conveyancing work that may need to be done when refinancing your property.
In a lot of cases, your new lender will be willing to pay all or part of your current lender’s fees to help switch lenders; however, the cost of remortgaging is still a potential stumbling block.
There are many factors that come into play when working out how much you will be able to borrow on a new mortgage: the value of your property, your income, how long you want to borrow for, and how long you have left to run on your current mortgage.
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A remortgage will be taken out with a new lender, so you’ll have to go through the mortgage application process in full. You will have to show evidence of your income, such as payslips and bank statements, along with details of your outgoings, like credit card repayments, personal loans, utility bills and other household costs.
To check the affordability of the remortgage, lenders will also carry out a ‘stress test’, which is designed to see whether you could keep up with the repayments if interest rates were to rise.
Whilst the longer term implications of consolidating debts could be a larger sum of interest paid over a longer period of time, the immediate benefits can be of huge significance. Borrowing equity that has built up in a property to repay debts – such as unsecured loans or credit cards – can reduce immediate monthly outgoings, and help keep your finances under control.
This is a very popular reason for raising money within a remortgage. Provided that there is sufficient equity in the property at the time the application is made – and that other standard criteria can be satisfied – lenders will often be happy to lend additional funds to be used towards improvements to a property such as extensions, replacement kitchens, bathrooms, or even for smaller projects like redecoration. This can add value to a property or make it more desirable in the event of a sale.
Along with paying off debts and carrying out home improvements, there are many other reasons why a lender may be prepared to increase a mortgage and thereby release capital. This may be for a one-off purchase like a car, boat, furnishings etc. It may be to pay for a special occasion like a wedding or a holiday. A lender may even be prepared to lend for scenarios such as a business venture, for investment purposes (which could include share purchases, retirement planning etc.) or even to buy a second property, such as a buy to let investment.
For properties purchased with a Help to Buy equity loan, remortgaging can be slightly more complicated – although this is in no way restrictive. There is additional legal work that would need to be carried out – as the equity loan provided results in a legal charge being put in place to protect the provider of the Help to Buy loan. The additional work required to ensure this charge is properly dealt with usually comes at a small additional cost, although in recent times many lenders have started offering cashback deals to go towards covering the cost of this work. Alternatively, if sufficient equity has built up in the property and there is sufficient income available, it may be possible to raise additional money to pay off the Help to Buy loan in full, thereby saving the interest costs that this loan will incur over time, and also ensuring the amount payable to pay this loan off does not increase if the value of the property were to increase in the future.