Remortgaging is a great way to save money on your monthly mortgage payments, but did you know that you can also borrow extra money when you remortgageRefinancing an existing mortgage with a new mortgage.? This can be a great option if you need to fund home improvements, consolidate debt, or pay for other large expenses.
The UK mortgage market is constantly changing, and with the cost of living rising, many homeowners are looking for ways to save money on their monthly repayments. One option is to remortgage to a new deal, which could potentially reduce your interest rate and lower your payments.
But if you’re looking to borrow more money at the same time, you may be wondering if that’s possible too. The good news is that it is. When you remortgage, you can borrow up to the full equityThe difference between the value of the property and the amo... in your home, minus any existing mortgage debt.
However, there are a few things you need to keep in mind before remortgaging to borrow more money. First, you’ll need to make sure that you can afford the increased repayments. Lenders will carry out affordability checks to assess your income and outgoings, and they’ll also consider the loan-to-value ratio (LTV) of your mortgage. The LTV is the percentage of your property’s value that you’re borrowing. The higher the LTV, the higher the risk to the lender, so they may charge you a higher interest rate.
Another thing to bear in mind is that remortgaging can come with costs, such as valuation fees, legal fees, and early repayment charges if you’re leaving your current lender before the end of your mortgage term. It’s important to weigh up the costs and benefits of remortgaging before making a decision.
If you’re thinking about remortgaging to borrow more money, it’s important to shop around and compare different deals from different lenders. You can use a mortgage comparison website to help you do this. It’s also a good idea to speak to a financial advisor to get personalised advice.
In the rest of this article, we’ll take a closer look at the remortgaging process and explain how to borrow more money when you remortgage. We’ll also discuss the pros and cons of remortgaging to borrow more money, and provide some tips on how to get the best deal.
Reasons to remortgage
Remortgage to borrow more
The cost of a remortgage
A remortgage is a new mortgage
The most recent statistics on UK mortgages come from a Bloomberg article published on January 9, 2023. The article states that over 800,000 UK households are expected to see their mortgage rates double in 2023. This is due to a number of factors, including rising inflation and interest rates.
However, there are still some good deals available for homeowners who are looking to remortgage. According to NerdWallet, the average rate on a five-year fixed-rate mortgage for a 40% deposit or equity is 5.01%, down from 5.07% a week earlier. For an equivalent two-year fixed-rate mortgage, the average rate is 5.49%, down from 5.61%.
If you are thinking about remortgaging, it is important to shop around and compare different deals from different lenders. You can use a mortgage comparison website to help you do this. It is also a good idea to speak to a financial advisor to get personalised advice.
Reasons to remortgage
Forbes argued that the fall in interest rates allowed many mortgage holders to remortgage their home to enjoy a more favourable, competitive deal.
Many homeowners enjoyed cut-price mortgage repayments while on an initial fixed-rate deal but have since reverted to the lender’s much higher standard variable rateThe interest rate charged by the lender that can vary over t... (SVR) once the initial introductory offer expired. Remortgaging – effectively replacing the existing mortgage with a new alternative – offers a way of avoiding the SVR by arranging a more competitive new deal. Money is saved.
Remortgaging may also offer greater flexibility than your current mortgage or lender offers. If you have recently enjoyed promotion at work and earn a higher income, for example, you might want to pay off your mortgage faster – but your current deal doesn’t allow that. Alternatively, a spell of sickness or unemployment might make a temporary pause in mortgage repayments a welcome break – but, again, that’s not possible with your present deal.
Remortgaging offers not only the chance of saving money on your mortgage repayments, but it may also be used to borrow more.
Remortgage to borrow more
While paying off your current mortgage, you have been increasing the equity you own in your home. If the outstanding mortgage is substantially lower than the current market value of your home, the value of that equity is potentially large.
A remortgage allows you to borrow more against the value of your home, unlocking so me of that equity and providing you with the cash to meet other budgetary objectives, such as:
- the chance to consolidate loans and other debts by paying them off after borrowing more through your remortgage;
- unlocking some of the capital value that has already accumulated in your home to make improvements or build an extension;
- investing in other property – at a time when the property market seems to be offering a broad selection of attractive deals; or
- treating yourself to a new car or take time off to travel the world.
A remortgage allows you to replace your existing mortgage with a new mortgage – borrowing more into the bargain.
The cost of a remortgage
It is important to bear in mind that there is likely to be some cost involved in arranging your remortgage – and that cost might outweigh the value of remortgaging.
You may be charged a penalty, for example, for repaying your current mortgage early. There may be an exit fee. And, there are likely to be charges for setting up your replacement remortgage.
A remortgage is a new mortgage
Remember too, that a remortgage is a new mortgage, which you have simply used to pay off your existing mortgage. Because it is a new mortgage, any lender must assess its affordability and your ability to maintain repayments on the loan.
Since a remortgage is a new application, any lender will want an up to date valuation of the property used to secure the advance. You will need to pay for that valuation.
The valuation is critical since it helps to establish your current loan to valueThe ratio of the mortgage amount to the value of the propert... (LTV) ratio – the amount of your outstanding mortgage as a percentage of the value of your home and, therefore, the amount of equity you own. The more you have paid off on your current mortgage, the lower the current LTV, and the lower the rate of interest you are likely to pay on your remortgage.
Your current financial circumstances will also be assessed along with the financial discipline you will need to repay the loan. So, that means a check with the credit reference agencies to access your current credit rating. Do not be overly worried if your credit history is less than perfect – there are lenders prepared to offer remortgage deals even if you have a poor credit history. Your mortgage broker can help you connect with them.
There are no hard and fast rules on how much you might borrow when remortgaging your property – lenders will make their assessments on a case by case basis after examining your income, expenditure, outgoings and any other borrowing or credit you may have.
Can I remortgage to borrow more money?
Yes, additional borrowingAdditional funds borrowed against an existing mortgage. is one common reason people remortgage. However, your eligibility will depend on multiple factors like your credit score, the current mortgage deal you’re on, and your property valuation.
How much more money can I borrow when I remortgage?
The extra borrowing capacity can vary depending on your mortgage lender’s lending criteria, as well as your personal and financial circumstances. An affordability assessment will be done to determine this.
Benefits of Remortgaging to Borrow More Money
- Consolidation of Debts: You could use the additional funds to pay off credit card or short-term debt.
- Home Improvements: Extra cash could be used for making your home more energy-efficient.
- Cheaper Rates: You may find a remortgage deal with a more competitive rate than a personal loan or credit card.
Drawbacks of Remortgaging to Borrow More Money
- Higher Monthly Repayments: Additional borrowing could mean your monthly payment goes up.
- Repayment Charges: Your current lender might charge a fee for leaving your current mortgage deal.
- Extended Mortgage Term: You might end up with a longer period of time to repay the mortgage debt.
- Product Fee: Your new mortgage deal may have a product fee.
- Valuation Fee: You may need to pay for a new property valuation.
- Legal Fees: There might be charges for the legal paperwork.
How to Remortgage to Borrow More Money
- Consult a Mortgage Broker: They can offer you a variety of deals and offer financial advice tailored to your individual circumstance.
- Credit CheckA check of a borrower's credit history, which is used by mor...: Lenders will look at your credit history and credit rating.
- Application Process: Submit your remortgage application to the chosen mortgage provider.
- Credit Score: Your credit rating must generally be good.
- Affordability Check: You’ll undergo an affordability assessment.
- Property Valuation: The mortgage lender will want an updated property price.
- Proof of Income
- Credit History
- ID and Address Verification
- Current Mortgage Statements
The application process can take anywhere from a few weeks to a few months, depending on various factors like your mortgage provider’s application process and your personal circumstance.
- Negative EquityA situation where the value of the property is less than the...: If your property valuation has decreased.
- Credit Score Impact: If you fail to meet the new mortgage repayment terms.
Getting the Best Deal
- Mortgage Calculator: Use a remortgage calculator to assess potential deals.
- Consult a Mortgage Adviser: They can offer you tailored advice.
- Shop Around: Don’t just stick with your current mortgage lender, explore other mortgage deals for better rates.
- Negative Equity: Remortgaging to borrow more money in negative equity is usually not possible.
- Bad Credit History: This will make it difficult but not impossible; expect higher interest rates.
- Self-Employed: You’ll need to provide more evidence of your income, and you may face stricter lending criteria.