If you’re a homeowner, you’ve probably heard the term ‘remortgaging’ thrown around quite a bit.
But what does it mean, and more importantly, how can it benefit you?
In this article, we look into the concept of remortgaging, particularly when your house value has increased. We’ll also explore how a mortgage broker can guide you through this process, ensuring you make the most of your property’s increased value.
Understanding remortgaging
Remortgaging is the process of switching your existing mortgage to a new deal with a new lender.
Homeowners consider remortgaging for various reasons, such as securing a better interest rate, consolidating debts, or releasing equity from their home.
For example, let’s say you initially took out a mortgage with a fixed interest rate for five years. As the five-year period draws to a close, you might start looking for a new mortgage deal to avoid slipping onto your lender’s Standard Variable Rate (SVR), which can often be higher.
This is where remortgaging comes into play.
What is equity?
So, how does an increase in your house value affect remortgaging?
Well, it’s all about equity. Equity is the difference between the market value of your house and the amount you still owe on your mortgage. If your house value has increased since you bought it, you’ll have more equity. And more equity can open up better remortgaging deals.
Let’s illustrate this with an example.
Suppose you bought your house for £200,000 with a mortgage of £150,000. This means you put down £50,000 as a deposit, which is your initial equity.
Now, let’s say the value of your house has increased to £250,000, but you still owe £140,000 on your mortgage. Your equity is now £110,000 (£250,000 – £140,000), which is a significant increase from your initial £50,000.
Loan to value explained
When it comes to remortgaging, one crucial concept you need to understand is the Loan-to-Value (LTV) ratio.
This is a percentage figure that compares the amount of your mortgage to the value of your home. Lenders use this ratio to assess the risks involved in lending to you.
You can calculate your LTV ratio by dividing your mortgage amount by your house’s market value, then multiplying the result by 100 to get a percentage.
For instance, if your house is worth £250,000 and you have a mortgage of £140,000, your LTV ratio would be 56% (£140,000 ÷ £250,000 x 100).
A lower LTV ratio is more favourable when applying for any mortgage. It indicates that you own a larger portion of your home outright, which reduces the lender’s risk. As a result, you’re more likely to secure better mortgage deals with lower interest rates.
If the value of your house has increased, and your mortgage is the same or slightly lower, then your LTV would have improved.
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.
The benefits of remortgaging
Remortgaging when your house value has increased can bring several benefits.
Having a lower LTV will give you access to more competitive deals, and occasionally a greater number of lenders as well.
But if your house has gone up in value quite a bit, then many people choose to tap-in to this money via a capital raising re-mortgage.
Better Mortgage Deals
As we’ve mentioned, a lower LTV ratio can unlock more favourable mortgage deals.
You might be able to secure a lower interest rate, which can reduce your monthly payments and save you money in the long run.
Releasing Equity
If your house value has increased significantly, remortgaging can allow you to release some of this equity.
You can then use this cash for various purposes, such as home improvements, paying off debts, or even investing in another property.
Debt Consolidation
If you have other unsecured debts, such as credit cards or personal loans, remortgaging can allow you to consolidate these into your mortgage.
This can simplify your finances and potentially reduce your monthly outgoings.
However, it’s important to note that this could increase the total amount you pay over time, as your mortgage term may be longer than your original loan terms.
Things to consider
While remortgaging can bring benefits, it’s not a decision to be taken lightly.
Here are a few key considerations:
Early Repayment Charges: If you’re still in the fixed-rate period of your current mortgage, you will probably have to pay an early repayment charge to switch to a new deal. This can be a significant amount, so it’s crucial to factor this into your decision.
Remortgaging Costs: Remortgaging isn’t free, although lenders do occasionally have reduced cost offers. You’ll likely have to pay legal fees, valuation fees, and potentially a booking fee for your new mortgage deal. Make sure you understand all the costs involved before proceeding.
Affordability: When you remortgage over to a new lender you will be applying for a brand new mortgage with them. They will need proof of your income and expenditure, and may possibly ask to see your bank statements. You will need to pass their mortgage affordability assessment, even if you are not borrowing anymore money.
When is the best time?
While the prospect of remortgaging can be enticing, especially when your house value has increased, it’s important to consider the timing.
If you are currently enjoying a special interest rate (fixed, tracker etc) you will be tied in for a number of years. If you move your mortgage away too soon you will need to pay exit fees, or early repayment charges.
These are expensive.
The best time to start looking is around three months before your rate ends. Ample time to search around, compare deals and then make an application.
If you’re thinking about remortgaging before your current mortgage deal ends it’s important to understand the costs.
Despite the potential charges, remortgaging early can sometimes save you money in the long run. This is particularly true if the interest rates have dropped significantly or your home has greatly increased in value.
Your mortgage broker will be able to run through the figures and compare costs.
Remortgage Guide
Our Guide covers the remortgage process, including how long it takes, and the different options you have when switching your mortgage.
Mortgage Broker Guide
In this guide we’ll take a look at what mortgage brokers do, how they can help you, how they get paid plus tips on how to find a good one.
Product Transfers
Should you remortgage with the same lender? Here is a guide to how it works and why you might want to stay put.
How much can you borrow?
You will obviously be restricted by your income and monthly affordability.
In general, most lenders will allow you to borrow up to 90% of the value of your home. This will include the mortgage you have now.
Can you remortgage with bad credit?
There are lenders that will accept certain types of bad credit.
You’ll still be restricted by your affordability and LTV, and the interest rates will be a bit higher.
How long does it take to remortgage?
On average a remortgage takes 4-8 weeks from when you make a full application.
What can you borrow extra money for?
There’s quite a few reasons why a borrower might want to do this:
Debt consolidation: If you have multiple debts, you may be able to consolidate them by remortgaging. This involves taking out a new mortgage that’s large enough to pay off your existing debts, leaving you with just one monthly repayment to make. By consolidating your debts, you could potentially lower your monthly payments and simplify your finances.
Home improvements: Another acceptable reason to remortgage is to fund home improvements. By remortgaging, you may be able to release equity from your property and use the funds to make renovations or extensions. This can not only improve your living space but may also increase the value of your property in the long run.
Divorce or separation: Remortgaging can also be an acceptable option in the event of a divorce or separation. If one partner is taking over the property, you may need to remortgage to release equity that was built up during your relationship. This is known as a transfer of equity.
mortgage product transfers
What are they?
A mortgage product transfer is a ‘remortgage’ but without switching lender.
You change over to a new interest rate deal but everything else stays the same.
They are simple, quick and often cheaper to arrange than a normal remortgage.
If your current lender is offering a competitive deal to move on to, and you don’t need anything else from your mortgage, it’s generally the best option.
But you won’t be able to
Borrow any more money – It’s a simple change of interest rate only.
Change who’s on the mortgage – To add or remove someone from a mortgage you need a transfer of equity remortgage.
Consolidate debts – It is not possible to borrow more money with a product transfer.
Take advantage of an improved loan to value – This may be different for your lender, but as your home does not need to be revalued (for a product transfer) it’s higher value cannot affect the LTV product choices available.
How a mortgage broker can help
An experienced independent mortgage broker can basically help you with all of the issues and problems we have looked at above.
If you don’t need to borrow anymore money then they will be able to compare the offer from your current lender, with thousands of other options from across the mortgage market.
If you need to remortgage early, they will be able to calculate the cost, including exit fees, and recommend the best overall lender to move to.
If you need to change who is on the mortgage they can arrange a transfer of equity mortgage, with extra borrowing to buy out the person leaving.
And if you would like to borrow some of the increased value in your house, they can arrange a competitive capital-raising remortgage.
To speak with an independent remortgage expert, please call 0330 030 5050 or use our nifty form.
Find a mortgage broker
FREQUENTLY ASKED QUESTIONS
Do you need a deposit to remortgage?
No. The equity you have built up in your home will be sufficient. Although you can pay extra if you want to reduce your mortgage.
Read more – Do you need a deposit to remortgage?
What’s the difference between a remortgage and equity release?
Generally speaking a remortgage is for someone who is still paying off their mortgage and an equity release plan is for someone over the age of 55 who no longer wants to make the monthly repayments.
Read more – What’s the difference between a remortgage and equity release?
Can you remortgage with bad credit?
Yes this is normally possible, but it will depend on the borrowers exact financial situation.
Read more – Can you remortgage with bad credit?
Is a remortgage based on your income?
Yes, a remortgage to a new lender is based on your provable income, while a product transfer does not require an affordability assessment.
Read more – Is a remortgage based on your income?
Do you need a solicitor to remortgage?
Yes and no! A solicitor, or conveyancer, is needed for the legal work. But you may be able to use the lender’s solicitor.
Read more – Do you need a solicitor to remortgage?
How long does it take?
It’s quicker than moving home, but most remortgages will take around 4-8 weeks.
Read more – How long does it take to remortgage?
Is remortgaging the same as releasing equity?
While many people release equity when they remortgage, the two are separate and optional.
Read more – Is remortgaging the same as releasing equity?
