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What Is A Remortgage And How Does It Work?

Have you ever wondered about the keys to unlocking the potential equity in your home? As a homeowner, you're sitting on a potential gold mine and remortgaging could be your shovel.

 

In essence, remortgaging is the process of switching your existing mortgage to a new deal, either with your current lender or a different one. It's a powerful tool that can help you save money, release cash, or reduce your monthly payments.

 

However, it's not without its complexities and potential pitfalls. With so much to consider, you'll want to know all the ins and outs before you make your move.

 

So, stick around, as we're about to unravel the intricacies of remortgaging.

How long does a remortgage take?

The process of moving your mortgage from one lender to another can take anywhere from 4-8 weeks. This timeline includes the time it takes for solicitors to complete the necessary legal work, for a valuation to be carried out on the property, and for the new lender to complete their underwriting process. However, the exact timeline can vary depending on individual circumstances and the complexity of the case.

You might be wondering, 'how early can I remortgage?' or 'can you remortgage early?'

 

Let's now turn our attention to these questions to understand the typical timeline for a remortgage.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

How early can I remortgage?

Before diving into the process of remortgaging, it's important to understand how early you can initiate the procedure and the duration it typically takes.

 

Typically, you can consider remortgaging around 4-6 months before the end of your current mortgage deal. It's crucial to start early because the remortgage process can take up to a few months to complete, depending on your lender and circumstances.

 

Don't leave it until the last minute; you wouldn't want to slip onto your lender's standard variable rate, which can be costly. It's also worth noting that some lenders have specific conditions about how early you can remortgage, so it's wise to check the terms of your existing mortgage before you start.

Reasons to remortgage

You might be wondering why people choose to remortgage.

Well, there are quite a few reasons, from wanting to make home improvements, to releasing equity, consolidating debt, extending the mortgage term, or even just getting a better mortgage rate.

 

Let's explore these reasons in more detail.

Remortgaging for home improvements

Opting to remortgage can provide the necessary funds for those much-needed home improvements, giving your property a fresh look and potentially increasing its value. You might want a new kitchen, an extension, or a loft conversion

Moreover, by enhancing your home's appeal, you're likely to attract more potential buyers when you decide to sell. It's a win-win situation: you enjoy a revamped space while boosting your property's market value. However, remember to do your maths right: ensure the increase in your home's worth will outweigh the costs of remortgaging. It's all about smart investing in your property's future.

Get a new or better mortgage rate

Securing a new or better mortgage rate often tops the list of reasons to remortgage your home. If your current rate is high, remortgaging can potentially lower your monthly payments and save you a significant amount in the long run. You're essentially replacing your current mortgage with a new one, ideally with more favorable terms.

 

If market conditions have improved or your credit score has gone up since you took out your original mortgage, you might qualify for a lower rate. Don't forget though, there are costs to remortgaging. You'll need to factor these in when calculating potential savings.

 

But, if you're looking to reduce your monthly payments or you want to pay off your mortgage faster, remortgaging could be the right move for you.

Remortgaging for debt consolidation

When high-interest debts start to feel overwhelming, remortgaging your home can offer a practical solution. Basically, you're taking out a larger mortgage on your home to pay off smaller, high-interest debts. This allows you to consolidate your outstanding debts into one monthly payment, often at a lower interest rate. However, remember that your home is at risk if you fail to keep up with the repayments. Also, the total amount repaid over time could be higher due to the extended loan term.

Remortgaging to release equity

Ever considered releasing some equity from your home through remortgaging? It's a decision that could provide you with a significant cash sum, depending on the value of your property.

 

Here are three compelling reasons to consider this option:

 

1. Debt Consolidation: If you're juggling various high-interest debts, remortgaging could give you the funds to pay these off, consolidating them into a single, potentially lower-cost, debt.

 

2. Major Purchases: Maybe you've got your eye on a new car, or a dream holiday. Remortgaging could provide the funds you need without touching your savings.

 

3. Investment Opportunities: If you spot a lucrative investment opportunity, releasing equity through remortgaging could provide the capital needed to take full advantage of it.

Extending mortgage term

It's entirely possible to extend your mortgage term, a key reason some homeowners choose to remortgage.

1. Lower monthly repayments: With interest rates increasing over the last couple of years many homeowners are looking to extend their terms to keep payments manageable.

2. More manageable debt: Extending your term can make large debts more manageable.

By extending your mortgage term you will end up paying more back in total which is a risk you should consider before doing so.

Remortgaging when house value has increased

Homeowners who have experienced an increase in their property value may find it advantageous to remortgage their home. By doing so, they can benefit from a lower loan-to-value ratio, which can make them eligible for better mortgage rates. This can lead to a reduction in monthly payments and substantial savings over the course of the mortgage term. Remortgaging can be a wise financial decision for those looking to take advantage of their home's increased value.

Remortgage valuation

In the process of remortgaging, a crucial step involves a property valuation, which assesses the current market value of your home. This isn't just a casual estimate, it's an in-depth evaluation conducted by a professional appraiser. The outcome of this valuation can greatly impact the terms of your remortgage.

 

While the valuation is typically conducted by a professional, it's important for you to have an idea of what's being assessed. Here are three key aspects they consider:

 

1. Property's Condition: The appraiser will examine the general state of your home. They'll look at structural integrity, the age of your home, and any renovations or improvements you've made.

 

2. Location: Your home's location plays a significant role in its value. Neighbourhood safety, proximity to schools, and local amenities are all taken into account.

 

3. Comparative Market Analysis: The appraiser compares your home with similar properties in the area that have recently sold. This comparison helps to establish a fair market value for your home.

Remortgaging when house value has increased

When your house value increases, you've got a golden opportunity to remortgage and potentially secure better terms on your loan. This could be due to various factors, like a booming property market or home improvements you've made.

 

So, how does it work? Let's say your house was initially valued at £200,000 and you took out a mortgage for £180,000. Over time, if the house value rises to £250,000, you're sitting on an additional £70,000 of equity. You can use this to your advantage by remortgaging to secure a  mortgage on a new rate at a lower loan to value or you could remortgage to borrow more.

Remortgage costs

Before you dive into remortgaging, it's crucial to understand the associated costs so you don't get caught off guard.

 

1. Arrangement Fees: This is the fee you pay to your new lender for setting up the remortgage. It can range from a free to a couple of thousand pounds, and may be added to your mortgage debt. Adding the fee to your mortgage will incur greater total interest over the term of your mortgage.

 

2. Valuation Fees: Your new lender will want to assess the value of your property. The cost of this valuation survey varies depending on the lender and the price of your property, but it's usually within the £150 to £1,500 range. Often lender will provide a remortgage offering with a free valuation included.

 

3. Legal Fees: When remortgaging, you'll need to hire a solicitor or licensed conveyancer to handle the legal work. This can cost between £500 and £1,500. As with valuation fees, some mortgage lenders will offer free legal work as part of their product range.

Do you need a solicitor to remortgage

If you’re remortgaging, you will need a solicitor in place to manage the transfer. This is because the title deeds will have to be migrated from one lender to another. 

Many mortgage lenders have deals in place where they will cover the legal fees of remortgage customers where they use the lenders appointed legal teams, or they offer cashback to offset these costs so you can appoint your own.

Remortgage with bad credit

Often, having bad credit can make remortgaging seem like an uphill battle, but it's not an insurmountable obstacle. You may be wondering, 'Can I remortgage with bad credit?' Yes, you can, though it may require more effort and strategic planning.

 

1. Check your up your credit report: This should be your first step. It's essential to know where you stand and to identify any errors that could be dragging your score down.

 

2. Improve your credit: Even small improvements can make a difference. Pay your bills on time, keep your credit utilization low, and avoid taking on new debt.

 

3. Seek professional advice: Remortgaging with bad credit can be complex. A mortgage broker who specialises in bad credit cases can help guide you through the process.

Self employed remortgage

If you're self-employed, remortgaging can seem like a financial maze, but with the right guidance and preparation, it's absolutely achievable. The process isn't vastly different from those in traditional employment. However, lenders can be a bit more cautious due to the perceived instability of self-employment income.

 

You'll need to provide evidence of your income, usually in the form of two years' worth of accounts or tax returns. Some lenders may accept one year, but the more you can provide, the better your chances. This shows a lender that you're capable of maintaining regular payments.

Award Winning Mortgage Broker, Carlisle & Dumfries.

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Parkhouse

Carlisle

CA3 0LJ

01228 406443

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