Remortgaging your home presents an opportunity to save on interest payments and access additional features. Whether you’re seeking a more affordable interest rate, the ability to make overpayments without penalty fees, or the need to switch mortgage types, remortgaging may be the ideal solution for you.
In this article, we delve into the key reasons for remortgaging and provide guidance on what to consider throughout the process. To begin, let’s clarify what it means to remortgage. Remortgaging involves switching to a new mortgage deal without the need to relocate.
Typically, mortgage deals last between two and five years, prompting many individuals to remortgage when their current deal expires to avoid their lender’s costly standard variable rate (SVR). At this stage, you have the option to either select a deal from your existing lender or explore better offers from new lenders. It’s crucial to assess whether the new deal, even with associated fees, will result in improved financial outcomes.
The remortgaging process typically takes between 4 to 8 weeks from the application submission.
People choose to remortgage their homes for various reasons, such as saving money, accessing funds, or clearing debt. However, it’s important to note that remortgaging before the end of your current mortgage product may incur an early repayment charge. Therefore, careful planning and timing are essential when considering a remortgage.
Now, let’s explore the top 8 acceptable reasons for a remortgage:
- Home improvements
Many individuals opt for remortgaging to finance significant home renovations, such as a new kitchen, bathroom suite, or an open-plan living extension. These improvements can enhance the value of your property and reduce credit risk, making lenders more willing to fund such projects.
Acceptable home improvement projects for remortgaging include:
- Loft conversions
- Extensions
- New kitchens or bathrooms
- Conservatories
- New garages
- Landscaping
- Swimming pools
- Double glazing
- Debt consolidation
Consolidating debts through a remortgage can help lower overall outgoings, especially if you have high-interest credit card bills and loans. Remortgaging to consolidate multiple sources of debt, such as credit cards and personal loans, can be a suitable option for many individuals. However, it’s crucial to carefully weigh the pros and cons before making this decision.
While mortgage interest rates are generally lower than those of unsecured loan products or credit cards, it’s important to consider the longer loan period, which may result in higher overall payments due to additional interest charges.
In some cases, reducing the amount spent on credit agreements takes precedence over the extra cost of interest, particularly when there’s insufficient income to manage the debt.
- Seeking a better deal
When you initially apply for a mortgage, you select one of the lender’s interest rate deals, typically lasting for 2, 3, or 5 years. If no action is taken when these deals expire, you will be transferred to the less favourable Standard Variable Rate (SVR).
While your existing lender may offer alternative rates through a mortgage product transfer, it’s worth exploring other lenders for potentially better deals. Our role is to search the market of over 100 lenders to find an improved remortgage deal tailored to your needs. Additionally, you may find that your loan-to-value (LTV) percentage has decreased since your last mortgage application, as your home’s value may have increased and the repayment mortgage balance would have reduced. This change in LTV may qualify you for different LTV bands and grant access to even more favourable deals, as lenders view lower LTVs as less risky lending propositions.
- To obtain additional funds
If you possess a substantial amount of equity in your property, a remortgage presents an opportune moment to secure additional funds through a larger mortgage. This approach ensures that all borrowed funds are subject to the same advantageous interest rate deal.
While the majority of individuals seek extra borrowing for home improvements and debt consolidation, it is worth noting that there are other permissible reasons for borrowing money as well.
When applying for a capital raising mortgage, it is necessary to provide the lender with a clear explanation of how the additional funds will be utilised. It is important to note that lenders may have varying preferences and regulations regarding the purpose of the borrowed funds.
We recommend consulting with one of our knowledgeable contractor remortgage brokers who can guide you through the process. Different lenders may have different perspectives and guidelines, so it is essential to explore all available options.
Remortgaging offers a convenient means of accessing additional capital at favourable interest rates. Whether you require extra cash flow, a well-deserved holioday, a new vehicle, or funds to enjoy life after retirement, there are numerous reasons why individuals choose to remortgage. Furthermore, it can also assist in providing a head start in the property market for your children or financing their wedding, or even both.
- Second property
Remortgaging your current home can be an excellent option for those interested in purchasing a buy-to-let property or a second property. If the remaining balance on your primary mortgage is relatively small, it may be worthwhile to consider remortgaging in order to release equity and utilise the funds as a deposit for the additional property. This approach can prove to be more cost-effective than obtaining a new mortgage, particularly considering that buy-to-let mortgages typically carry higher interest rates compared to standard mortgages.
Given that the new mortgage will be larger than your current one, it is necessary to provide evidence of your income and expenses to demonstrate your ability to manage the higher monthly payments.
- Separation or divorce
In the event of a relationship breakdown, selling your jointly owned home may appear to be the only solution. However, if you are capable of making the mortgage payments independently, remortgaging presents an alternative that can provide you with sufficient funds to buy out your ex-partner and assume full responsibility for the mortgage.
Most lenders accommodate this type of remortgage, known as a transfer of equity. If affordability is a concern, another option is to add a new individual to the mortgage while removing the ex-partner simultaneously. This process would require the new individual to undergo the lender’s standard credit and affordability checks, just like yourself.
- Change mortgage type
While many individuals opt to change their mortgage to access additional funds or secure a new deal, it is also possible to switch lenders in order to obtain a mortgage with additional features.
If you are considering transitioning from an interest-only loan to a repayment mortgage, it is likely that your current lender can facilitate the change without necessitating a remortgage. You may also be interested in exploring an offset mortgage, which allows you to link your savings account to your mortgage and offset the savings against your mortgage balance. This can be an effective strategy for reducing interest payments over the course of the loan.
Additionally, switching to a more accommodating lender can enable you to make larger overpayments and pay off your mortgage more quickly, particularly if you have excess income that exceeds the allowable overpayment limit and triggers a fee.
In some cases, a complete change in mortgage type may be necessary, such as transitioning from a residential mortgage to a buy-to-let or holiday let mortgage.
- Reduce monthly payments
In addition to seeking a new mortgage deal, there may be a financial need to reduce the cost of your mortgage by lowering the monthly repayments. There are several ways to achieve this: –
- Switch to a more affordable interest rate, which will result in lower payments for the duration of the product.
- Decrease the loan amount by remortgaging for a lower sum, thereby reducing the repayments.
- Extend the mortgage term, providing more time to repay the mortgage and subsequently reducing the monthly payments.
- Transition from a repayment mortgage to an interest-only mortgage, which can significantly reduce monthly costs. It is crucial to seek expert advice before pursuing any of these options, especially if you are currently struggling to afford the repayments.
How to get the best deal
Securing the best remortgage deal depends on various factors, including the amount of money you wish to borrow and the available interest rates, which are determined by your credit score.
To ensure that you obtain the most favourable remortgage deal, it is essential to compare products from different lenders and seek independent mortgage advice. While many individuals prefer to utilise comparison sites and arrange their own mortgage, we recommend the following steps to secure the best deal:
- Begin considering your options approximately 9 months before your current deal expires.
- Determine what you want to achieve with your new mortgage.
- Gather all necessary paperwork, such as contracts, umbrella payslips and bank statements.
Contact My Contractor Broker on 02394 211122 for expert assistance. Taking the time to thoroughly explore your options and conduct market research is crucial in securing the best deal and ensuring that you are well-informed.
We have established strong relationships with lenders who understand contractors and may be able to offer more competitive rates than those advertised, so please do not hesitate to reach out to us..