The process of remortgaging involves replacing an existing mortgage with one from a new lender.
But is a cash deposit necessary when applying for a mortgage with a new lender?
When remortgaging, you should not need a deposit as it involves exchanging one mortgage for another without moving home.
This article provides an overview of the remortgaging process, including the impact of home equity and the potential requirement for a deposit in certain situations.
How do remortgages work?
Remortgaging is a good option for individuals seeking to save money on their mortgage or change an existing arrangement.
It involves securing a new mortgage to replace the old one, potentially resulting in a more favourable interest rate, increased borrowing capacity, access to additional funds from home equity, or a switch from a variable to a fixed rate mortgage.
When remortgaging, it’s important to find the most suitable deal, ensuring that the savings outweigh any associated costs. The initial step involves determining the size of mortgage and its duration, which will aid in selecting the appropriate loan type, such as a standard (SVR) mortgage or a variable rate.
After deciding on your basic requirements, it’s important to shop around for the best lender. Finding better rates will save you money in the long run. But always consider additional fees, such as early redemption penalties, before committing to a particular lender.
A qualified mortgage broker can conduct research on your behalf, searching over 100 lenders to secure a favourable deal. They will also be able to compare the total cost of different mortgages, which will include the interest rate plus other fees and costs.
Upon completion and approval of paperwork by the lender, the new mortgage is used to pay off the existing one.
What are the reasons for remortgaging?
There are various factors that might require an individual to consider remortgaging their home.
These are our top six
- By switching to a better deal, it is possible to obtain a lower interest rate or shorten the loan term, resulting in potential long-term savings.
- Some homeowners choose to increase their mortgage in order to fund home improvements or an extension.
- Remortgaging can be a method of consolidating current debts into a single, manageable payment.
- When making a second property purchase, it is possible to provide funding for either the deposit or the entire purchase price.
- A transfer of equity refers to the process of removing an ex-partner from a mortgage.
- One reason for switching lenders is to find better terms or customer service.
Can you remortgage for a deposit on a new property?
A popular option when remortgaging is to apply for a bigger mortgage, sometimes called capital raising.
This extra money can then be used for many different purposes, including as a deposit for a second property.
Do you need a cash deposit?
When remortgaging a home, the property equity is used in place of a cash deposit, eliminating the need for additional money or savings.
The amount of money you’ve paid off on your mortgage can impact the rates lenders offer. Generally, lenders offer better rates for properties with higher equity and lower LTV.
Typically, when purchasing a property, a mortgage deposit is paid initially and the remaining purchase price is covered by a mortgage.
If you put down a large deposit then this reduces your LTV.
Property values tend to appreciate over time, resulting in an increase in equity, which refers to the portion of the property that belongs to the owner. Remortgaging allows you to access the increased value of your house.
The balance on a repayment mortgage naturally decreases each year, as you chip away at the debt. This also increases your equity.
Why is this important?
The equity and loan-to-value ratio impact the choice of lenders and mortgage options available to an individual. When opting for a 75% mortgage, there are typically more lenders and deals available to choose from than with a 90% mortgage. Additionally, the rates offered are often more affordable.
All lenders, and their products, each have a maximum LTV percentage. ie 50%, 75%, 85% etc. A higher level of equity results in lower risk for banks, which leads to lower rates as a reward.
Here are some remortgage 5 year fixed rates from the Halifax to illustrate how LTV works.
| RATE | MAX LTV |
|---|---|
| 4.06% | 60% |
| 4.19% | 75% |
| 4.50% | 80% |
| 4.66% | 90% |
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
Is it worthwhile to pay a deposit anyway?
There are two potential benefits.
- If you provide an extra deposit, your mortgage will decrease, resulting in lower monthly payments and interest charges.
- By making an extra deposit, the loan to value ratio decreases as the equity goes up. Consequently, a lower interest rate may be available due to the improved LTV.
Before investing your life savings in a mortgage, it is important to consider two key factors.
When selecting the capital to invest in your home, it will become a permanent part of the home’s value. It is important to ensure that you maintain a sufficient amount of savings in addition.
Please discuss your loan to value with a broker first, as different lenders have varying LTV percentages. They can determine the exact amount needed for you to transition into a lower LTV band and hopefully have a greater number of products available.
Negative equity
Negative equity occurs when your mortgage balance is more than the value of your home. This occurs most often when house prices fall.
You will not be able to remortgage to a new lender if you are in negative equity.
One way to improve this situation is to reduce the mortgage balance with some savings, bringing the LTV down sufficiently so there’s some other deals to look at.
How long does it take to remortgage?
Whatever your reason for remortgaging, you are probably wondering how long it will take. The remortgaging process usually takes 4-8 weeks to finish, but it can take longer.
In many cases, the legal work needed for a remortgage is minimal, and some lenders provide incentives like covering legal fees for switching to their products. As a result, the remortgage process becomes more streamlined and cost-effective in the long term.
In order to help the remortgaging process, it is crucial to provide the right documents, including proof of income, as and when required. Having these documents in advance can aid in ensuring the process proceeds seamlessly and effectively.
Our Remortgage Guide provides a detailed explanation of the process.
When should you start thinking about remortgaging?
To maximise the potential benefits of remortgaging, it is advisable to keep a close eye on when your deal is due to end.
You need to start the process before this date.
It is recommended to begin researching three to six months in advance to thoroughly examine all available options and gain insight into the current market conditions.
The application process usually lasts from four to eight weeks, therefore conducting research beforehand can be a time and cost-effective measure.
We suggest that you contact a broker at least 3 months prior to the end of your deal to allow sufficient time for them to thoroughly examine your options and submit the application.
How much can you remortgage for?
The amount you can remortgage for is determined by factors such as your income, property value, and deposit/equity. It is possible to remortgage up to 90% of your home’s current market value, but this is subject to variation based on individual circumstances.
When taking out a loan, it is important to consider the potential impact of borrowing more than necessary. Careful consideration of all options can help avoid increased monthly payments and potential debt.
What proof of income is needed?
Lenders will require proof of income such as payslips, bank statements or other relevant documentation. Always submit accurate and current documents to speed up the underwriting process.
When applying for a loan, it is common for lenders to request proof of your annual income and additional documentation if you are self-employed.
- CIS payslips
- SA302
- Annual accounts
- Company accounts
It may also be necessary to provide financial documents such as bank statements and credit reports. These documents assist the lender in determining loan eligibility and repayment affordability.
Ready to explore your remortgage options?
Let our remortgage experts lead the way.
Fill out our quick form and gain access to tailored remortgage advice and exclusive rates.
An independent mortgage broker can access over 100 lenders on your behalf. They will make the process smoother and more profitable than going it alone.
You know it makes sense.
