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Remortgaging explained
Remortgaging Explained

What is remortgaging?

A remortgage is a second or an additional mortgage taken out on an existing home mortgage loan. You may decide to remortgage to either release cash or to secure a better mortgage deal.

Remortgaging may be a good choice for you as a way of raising additional funds or if you are looking to switch to another loan provider to get more favorable interest rates or mortgage terms.

A remortgage can be taken out as a repayment mortgage or an interest only home loan. You can find remortgages that have all the standard terms, including fixed and variable rates, and capped rates remortgages. Remortgaging packages usually last for a period of between 1 to 5 years.

At the end of your agreed remortgage term, you are likely to be moved on to a pre-agreed product such as a loan with a tracker or a variable rate.

How do remortgages work?

In order to determine a typical amount you are permitted to borrow, the loan provider you have chosen to obtain your remortgage will take into account a variety of issues as follows:

  • statements and proof of your annual income

  • statements and proof of your annual or monthly expenditure

  • your property value

  • any existing equity you may have

In most cases, standard income rates average between 3 to 5 times a single salary and 2.5 to 3 times joint salaries. However, some refinance loan providers will allow you to borrow more based on your income. There are cases where loan providers have been willing to offer more than the property value—some as high as twice the borrower’s income!

If you are remortgaging for 100% of the value of your existing property, then you will not require a deposit. Otherwise standard industry terms will apply—usually from 5% up—but this will depend on your lender. If you are fortunate enough to already have equity in your existing property, you will not have to find any deposit.

What are the benefits of remortgaging?

By changing or switching to another deal through a remortgage, you are likely to save a considerable sum of money in interest rates and payments immediately. Similarly, by either extending your loan or releasing equity in your existing home through a remortgage, you are able secure a good loan with favourable interest rates as well as raise a significant amount of cash.

Important considerations before remortgaging

  • Are you tied into your current lender?

  • Will you have to pay penalty payments if you want to switch deals or lenders? Remember that not all tie-in periods expire when your mortgage deal ends – some may last longer. Check to see if you will have to pay penalty payments, and if so, how much they would be.

  • Do you have to pay for any remortgage fees including arrangement fees, valuation fees, and legal costs?

  • Will the sum of these fees exceed the savings you will make through a remortgage? Choose a lender who, as part of the remortgage deal, will cover all or most of the remortgaging costs.

You will probably find that the term of your new remortgage may be much longer than a standard loan product. Paying your loan back over a longer term has the advantage of keeping your regular repayments low. However, be aware that it could cost you more in the long-term as you will be paying back for so much longer. It is vital to check your overall remortgaging loan amount before you make a decision.

Remember: Mortgage rates are generally the best loan rates available so this can often be the best way of taking out a loan to raise finance.

Visit our list of mortgage options

 
 
 
 
 
 
 
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