Your home may be repossessed if you do not keep up repayments on your mortgage.
Why Should I Remortgage?
There are many reasons you would consider remortgaging. The main reason would be to make sure that you have the most competitive deal and are therefore saving as much money as possible per month.
When you remortgage it is based on your current situation. Therefore if your property has increased in value and your mortgage balance has reduced over the last few years, you’ll have a lot more equity in the property. Remortgaging also presents you with an opportunity to not only make sure you have the best mortgage product but also to reassess the terms of your mortgage.
Let’s explore some of the changes you can make and reasons for and against.
The Term
When you take out a mortgage you sign up for an initial, introductory period, a 2 year fixed rate for example. Overall though you set a longer total term, usually this is between 25-40 years.
Many people will take the maximum term possible when they first take out a mortgage, something like 35 years. The reason people do this is to keep the monthly payment to a minimum at first. Of course, taking a mortgage for longer than you can afford is not advisable as it will mean you are paying off your mortgage debt slower and therefore paying more interest overall. Remortgaging presents you with an opportunity to reassess this overall term.
Let’s say you took a 2 year fixed rate mortgage over a total of 35 years. You did this because you wanted to keep your payments to a minimum when taking out the mortgage. You may have been able to afford a shorter term but you didn’t want to risk it given a shorter term would mean higher monthly commitments and you weren’t sure of exactly how high your outgoings would be before you moved in. 2 years rolls around and your initial rate is coming to an end. Of course, you could select another 2-year rate over the remaining 33 years OR you could reduce this total term to better suit your current monthly budget. For example, even though you have 33 years left on your mortgage term, you could reduce the term to 25 years. This may mean a slightly higher monthly payment but it would mean less interest overall and would mean you are clearing your debt quicker.
I guess the point I’m trying to make is that remortgaging gives you an opportunity to reassess more than just the mortgage balance.
Increasing your mortgage balance
This is the most common request when people remortgage. Their property may have increased in value and they want to know if they can use some of that extra equity to benefit them. There are a number of reasons someone might want to do this. A few of the more common reasons are listed below.
- Consolidate some debt. This is a tricky one and should be discussed with your Broker in-depth so that you understand the positives and negatives. Consolidating a short term debt like a credit card/loan/hire purchase into a loan term debt like a mortgage will end up costing you more in the longer run. However, it may reduce your monthly commitments and make your outgoings easier to manage. Long story short, you can potentially consolidate debt but you should definitely discuss it with your mortgage broker first.
- Home Improvements – This is a common reason to raise your mortgage balance too. Perhaps you need a new kitchen, a new bathroom, want to redecorate or sort the garden but you don’t have the funds. Most mortgage lenders will allow you to increase your mortgage balance in order to release funds to do this. Of course, this is subject to credit and your affordability but absolutely can be done.
- Personal Use – A lender will always want to know why you are releasing funds for money Laundering purposes but this can be fairly flexible. A large number of lenders will allow you to raise for ‘Personal Use’. This can include anything from wanting money to buy a car to taking a holiday. As long as you are clear with your reasons to your Mortgage Broker, they should be able to find an option.
- To buy another Property – This is more common than you might think. Your property has gone up in value, your mortgage balance has reduced and you want to make that extra equity work harder for you. Why not invest in another property? This is a very common reason. Again, it is subject to credit and affordability checks but there are many lenders that will allow you to release some money in order to put down a deposit on a Buy to Let property, a holiday let, a second home. There will be a number of considerations to take into account in relation to the new property (i.e. running costs, simultaneous completion, etc) but your Broker should be able to steer you through these to find you the best option.
There are many reasons you may want to release funds with a number of positives and negatives involved. Pick up the phone to a Mortgage Broker and have a chat about your plans in advance of your current mortgage product expiring. This way you will know your options and can get everything in place before you end up paying too much for your mortgage.
Reducing your Balance
Another common thing people look to do when they remortgage. Usually, this is done to try to get to the next best ‘loan to value’ bracket. These brackets typically work in 5% increments. Your property may have gone up, or down, in value but your balance may mean that when you remortgage you are stuck in the middle. Therefore you may want to pay off a lump sum to benefit from a slightly better rate.
With savings and investment rates being fairly low at the moment, you may just have a lump sum that isn’t doing much for you elsewhere that you’d like to use to clear down your mortgage debt. You can certainly do this.
Clearing down your mortgage debt will mean a lower monthly mortgage payment but also massive interest savings overall as you’ll no longer be paying interest on the lump.
Summary
Remortgaging is the smart thing to do but with so many options it is worth talking to a Mortgage Broker about your plans and situation to see what’s possible.
We are happy to talk through all the options with you, find the right lender to arrange the mortgage for you.
If your mortgage rate is coming up for renewal within the next 6 months, then do give us a call on 0117 332 5197. Our initial conversations usually last around 15 minutes.
Alternatively, you can email enquiry@lloydwellsmortgages.co.uk and let us know how we can help you.
We will discuss:
- How much you can borrow
- What that will cost
- What fees can you expect
- How Lloyd Wells Mortgages work
- What insurances you will need
- What documentation you will need to provide
- Next steps
Your home may be repossessed if you do not keep up repayments on your mortgage.