What Is Remortgaging?
Remortgaging is where you switch the mortgage you currently have, perhaps to get a better rate, or raise some money against your property. It could be that you switch to a new lender, or stay with your current one.
Reasons To Remortgage
There are many reasons you might want to remortgage. It could be to consolidate and repay any outstanding debts, or perhaps fund some home improvements to increase the value of your property. You could even remortgage to free up the money to buy another property, either a second home or holiday home. You might want to remortgage to reduce your monthly payments, or alternatively, decrease the term of your mortgage.
How To Remortgage
The first step to remortgaging is thinking carefully about your reasons for doing so as well as the amount of money you want to raise. You the need to check your current mortgage deal. It could be you’re on a standard variable rate mortgage, which often means you’re not in a fixed deal. It could be that you’re in a fixed rate mortgage, which can be in place for typically 2-5 years (sometimes longer). If you’re in a fixed rate it’s likely you’ll need to pay early repayment charges.
If you’re satisfied it’s something you’d like to do, you’ll need to supply proof of income and bank statements for the previous 3-6 months.
It’s sensible to look at rates beyond your current lender. Making use of a mortgage broker usually gives you access a range of lenders, including those not on the high street, that you may not be aware of.
Remortgaging Pros and Cons
- Remortgaging lets you free up cash from your property to help you with any large purchases you need to make. Alternatively it can help ease any financial burdens.
- It can also make simple financial sense. If you’re on a higher rate than you need to be, switching your mortgage, even with Early Repayment Charges (ERCs) can be a smart move.
There are however, risks to remortgaging
- As you’re likely aware with your current mortgage, your home is at risk of repossession if repayments aren’t made on time.
- Your mortgage term may increase depending on the purposes for remortgaging and the new deal you take out.
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The Cost of Early Remortgaging
If you are in a fixed term deal, you’ll almost certainly have Early Repayment Charges (ERCs) if you want to come out of the deal early. ERC’s are often a percentage of the amount to be repaid over the time period, and can often be quite high. That said, if the interest rate on your current mortgage deal is high, you could still save money when taking into account the ERCs against a lower interest rate.
Remortgaging With Bad Credit
If you have bad credit, remortgaging may feel like an impossibility. Whilst it certainly is more difficult, it isn’t impossible. It’s best to contact a mortgage broker, many of whom may access lenders that help people find bad credit mortgages. High street lenders tend not to offer mortgages to those with less than perfect credit scores. This is because they offer mortgage products to the masses and don’t often consider less-than-usual circumstances. It may be that you’re not eligible for a high Loan to Value (LTV) or that you may be subject to higher than usual interest rates, but remortgaging with bad credit is certainly possible.
An unencumbered property is one that has no mortgage and is owned outright. This is either from a mortgage being paid off, or the property being bought outright. It is possible to remortgage on a property that has no current mortgage. You are essentially taking out a loan with your house as collateral. It’s important to consider the purposes for doing this, as putting your home at risk shouldn’t be taken lightly. It could be that you want to raise funds for a buy-to-let property, or move to a more expensive house.
Alternatives To Remortgaging
Depending on the purpose for remortgaging, there could be other options available to you.
It could be that a second charge loan, also known a secured loan, could be applicable. A second charge loan allows you to raise money against your property, but protects your current interest rate if you’re happy with your mortgage. With a second charge mortgage, you need at least 15% equity in your home as the loan is taken out against the equity you have in your property.
If you’re looking to raise funds for a property to rent out, a bridge loan or buy-to-sell mortgage may be more applicable. This is a form of short term finance that allows you to raise funds to act as a deposit on a property. These are typically more expensive than usual mortgage products, but are far more flexible, making them suitable for developers. This combined with a Buy To Let mortgage may be a better way of securing a property to rent out.