As any property expert will tell you, a mortgage represents one of the most significant financial decisions you will ever make. Depending on your personal circumstances, it may be in your best interests to remortgage your current property.
For this reason, the team here at White Horse Surveyors have put together the following article to guide your through the process of remortgaging as well as its many benefits and limitations.
What Is Remortgaging?
The process of remortgaging refers to the action of taking out a new mortgage on a property that you already own. There are many reasons that you may want to change your current deal, but they are usually for the following purposes:
- To reduce current remortgage payments
- To release any current equity on the property (which can then go towards home improvements or repaying other financial debts)
Once you have initiated this process you may also be required to:
- Verify your current earnings (income and outgoing)
- Pay several arrangement or product fees
- Present evidence supporting the purpose of your loan (builders estimates, debt payments, valuation, etc)
Regardless of your personal circumstances, we would always recommend that you seek the advice of qualified experts before you decide to remortgage your home. The bank will be able to advise you financially – looking at your repayments and assessing what they believe you can afford to pay.
Our qualified property surveyors are another excellent source of guidance. These local experts will not only provide you with an official valuation for remortgaging purposes, but they can also provide impartial advice on the best course of action moving forward. Helping to ensure that you are making an informed decision on your potential remortgage.
What Are the Benefits of Remortgaging?
The primary benefit of any remortgage is the opportunity for a homeowner to decrease one of their most significant monthly payments. By choosing the right scheme, you could potentially save £1000s in your yearly outgoings.
Furthermore, if you are switching schemes to release equity, then you can invest these finances into other aspects of your property or simply put them aside for a rainy day. However, it should also be noted that, you are still increasing your loan by doing this and should therefore careful consider any such commitment. It is important to remember that both your personal position and that of the housing market should be carefully examined – with the latter being especially prone to sudden changes.
Nevertheless, if you are in a secure position, switching to a different mortgage plan can help you to recoup some of its hidden value without having to sell the actual property. This is typically a far more practical and realistic option – especially if you are an older homeowner.
What Are the Limitations of Remortgaging?
As we mentioned earlier, the process of remortgaging to release equity can be an incredibly risky venture due to the ever-changing nature of the housing market. More specifically, if house prices drop dramatically in the time between acquiring your first mortgage and the point that you begin to consider remortgaging you could find yourself in Negative Equity. This term refers to a situation where your mortgage is greater than the current value of your home. To learn more about the various implications of this deficit, check out our blog on the topic here.
Furthermore, by making the decision to leave your current mortgage plan before it has expired, you may be incurring several additional charges. These can include:
- Deeds Release Fees (or various administrative charges) – These usually take the form of small exit payments.
- Early Repayments Charge (ERC) – Calculated based on a percentage of the remaining loan.
- Legal Fees – Usually incurred when you are releasing equity.
- Set-up Charge – Your new lender may charge a fee to kickstart your new mortgage plan.
Whilst most of these charges are relatively small, when they are combined with more significant fees (i.e. the Early Repayments Charge) they can begin to add up and affect your personal finances.
Another reason that people often look to remortgage their home is when they have outstanding debt to consolidate. However, although this may seem tempting, it is not always the best course of action. By extending your mortgage across a longer period you may end up increasing the amount that you are paying.
If you are considering remortgaging your property and require professional or impartial advice on your move, please do not hesitate to contact our helpful and friendly sales team for expert advice on the process.