A remortgage or ‘remortgaging’ refers to applying for a new mortgage, usually with better terms and sometimes with the option to borrow money on top of your existing mortgage. This could refer to your home, such as a residential mortgage or even your commercial property such as a store, office or shop.
With some mortgage deals lasting 5, 10, 20 or 35 years, it is very possible that you may not be getting the best rates as a homeowner or property owner.
Whether you committed to a fixed rate mortgage or were approved on the basis of your income and credit score at the time of the application, you may find that you are eligible for more favourable terms and could make a significant saving each month and year.
Below, we highlight some of the key points involved with remortgaging your property or home.
Some stats about remortgages
- Around 500,000 remortgages in the UK each year
- Around 50% are equity withdrawn mortgages and 50% are refinancing mortgages
- Sources claim that remortgaging successfully could save homeowners £3,000 to £4,500 per year
Why should I remortgage my home?
- Save money by accessing lower mortgage rates
- With a higher income and a better credit score, you could be eligible for better rates
- You can borrow money against your home
If you are looking into remortgaging your home, you may find that you could save hundreds or thousands of pounds per year on your mortgage payments.
If you are stuck on a fixed rate mortgage or the standard variable rate and perhaps today there are much lower rates available, there is an option to change to a new mortgage deal or ‘remortgage’ to access better rates. Plus, with a better credit score and higher family income, this could make you eligible for lower rates.
Example: Moving from a 5% mortgage at £175,000 to a rate of 3% would save around £180 per month, equal to £2,160 per year
Not only can you make a monthly saving, but you can also release some equity from your home on top or borrow money against your home. Whether it is for debt consolidation, paying for school fees, weddings or other expenses, you can draw down a large sum and the repayments are added to your monthly mortgage repayments.
Example: If you have a property worth £300,000 and a mortgage worth £200,000, you could raise an extra £25,000 and make your mortgage payments worth £225,000
How can I borrow money when I remortgage?
With borrowing amounts ranging from £10,000 to £250,000 (or more), the amount you can borrow when you remortgage can depend on multiple factors including your:
- Credit score
- History of mortgage payments
- Equity in your home
- Outstanding mortgage value
- Value of your property
Borrowing money against your home is commonly known as secured loans, second charge mortgages or just, second mortgages. You can borrow up to 80% or 90% LTV on a second charge mortgage depending on the lender.
The average amount that homeowners borrow by way of a second charge is £20,000 to £30,000.
How much can I save when I remortgage?
Data shows that the average homeowner can save around £3,000 to £4,500 per year when moving from a standard variable rate (SVR) to a new mortgage deal with a lower rate.
Other factors will determine how much you can save including your credit history, equity in your property and more.
Will I always save money when I remortgage?
No, you may not always save money when you get a remortgage, which is why it is important to run the numbers beforehand.
If you are looking to end your existing mortgage deal early, you may be required to pay an early repayment charge (ERC) ranging from 1% to 5%. This charge needs to outweigh the potential savings you get from a new mortgage deal.
In addition, you may need to remortgage because your last mortgage is now coming to an end. But if you have been missing repayments, have a worse credit score than before or the market is not offering competitive rates, you could find yourself paying more than your original mortgage.
What are the cons of remortgaging?
It is always important to be aware of any potential drawbacks. If you are looking to raise money on top of your mortgage, this will increase the size of your mortgage and maybe increase your mortgage repayments too.
If you are looking to borrow sums of £10,000 or £20,000, there may be cheaper options via 0% credit cards or personal loans, assuming that you have a good credit score.
You should always be cautious when adding debt to your mortgage since falling behind on repayments could put your home at risk of repossession.
Information extracted from Lending Expert
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