With interests rates and the cost of living increasing now may be a good time to review your mortgage to ensure you are on the right deal and possibly releasing equity to allow you to raise money to carry out some home improvements &/or debt consolidation that you may have been considering for some time.
How does remortgaging work?
Remortgaging is the process of replacing the mortgage you already hold on a property you own, to a new mortgage on the same property. This could be with your existing lender or a new lender.
What is releasing equity?
The equity you have in your property is the difference between the property value and the secured debt you have i.e. mortgage balance. By remortgaging and releasing equity, this can give you the money to spend in the present day.
Raising money through a Remortgage could be good move for many homeowners, as it maybe more affordable when compared to a personal loan, secured loan or using a credit card.
Can I remortgage with the same lender?
This could be a possibility, however it is recommended that you seek advice from a mortgage broker as they will be able to compare what your current lender will offer you against what other lenders are willing to offer and give you advice to the right remortgage deal.
Remortgaging for debt consolidation – The Advantages & Disadvantages
Debt consolidation is when you combine at least two debts, although often more, into a single and more considerable debt. Given that many people undertake debt consolidation, it is a step that benefits people, however it is important to take your time, get good advice and be fully aware of the advantages and disadvantages which we have outlined here:
- As a result of consolidating your debts you may lower your monthly payments which can relieve any financial stress you are under.
- You could pay off your debt sooner, and you may pay less money in doing so. When you consolidate your debt you will have fixed term to pay the debt off. This speeds up the process, and by paying off the debt in less time, you pay less interest, so you could save money.
- You simplify your finances. If you have a lot of bills and debts to pay each month, there is a strong chance you might forget or overlook one. By consolidating your debts into one, you only have one obligation to pay each month, giving you fewer things to worry over.
- You could enjoy a lower rate of interest. If your existing debt includes credit card debt, there is a good chance that a debt consolidation loan would be a lower rate of interest.
- You have a fixed repayment schedule allowing you to budget now and in the future.
- Overtime your credit score may improve as having credit cards at their limit has an impact on your score.
- You are placing unsecured debt onto your home/property, so if you fail to keep up the repayments you are possibly risking your home/property.
- There may be fees involved when arranging a remortgage as mentioned below and fees for closing down your existing debts.
- Be aware that if the debt is spread over a longer term you may pay back more in the long run.
Remortgaging for home improvements – The Advantages & Disadvantages
Lots of people explore this option as you are able to raise larger sums of money and spread the repayments over a longer period of time when compared to unsecured loans.
- You may get a lower rate compared to unsecured or secured loans
- You can borrow larger sums compared to unsecured loans
- You can spread the monthly payments over a longer period of time to keep the payments affordable, whereas an unsecured loan generally has a maximum term of 5 years.
- If you extend the period of your mortgage you will pay more money back in the long run.
- The remortgaging process can take some time – normally 6-8 weeks.
- There will likely be remortgaging fees to consider (outlined below)
- Your home is at risk if you cannot meet the repayments
Are there other ways of releasing equity instead of a remortgage?
There may be good reasons to keep in place your existing mortgage deal, such as you are on a low rate or you would have early redemption fees to pay if you changed lenders – so here are other ways to release equity:
- Further Advance – This is an additional mortgage provided by your existing mortgage lender which is secured against the property.
- Secured Loan – This is a separate loan, also known as a 2nd mortgage, where the borrowing is also ‘secured’ against your property. These are typically provided by specialist lenders accessible through brokers.
How much does remortgaging cost?
The cost of remortgaging depends on many factors and are specific to your circumstances, however here are some costs that you may incur:
- An early repayment charge to your existing lender. This could range from £0 to possibly up to 5% of your mortgage, so check your existing mortgage deal/terms.
- An arrangement fee, which is payable to your new lender, and this could range from £0 or a % of the new mortgage.
- A property valuation fee, which is payable to your new lender, and this could be £0 or you may have to pay for this. The amount would depend upon whether the lender requires an online valuation, a drive-by valuation or if a full internal inspection is required.
- A conveyancing fee, this could be £0 if using the lenders appointed conveyancer or cost £500+.
- A broker fee, if applicable, and this cost could range depending upon your circumstances.
You will also have your new mortgage payments to manage each month.
Have an Enquiry to Discuss?
If you would like further information around your mortgage or secured loan options, the mortgage advisers at The Money Hub would be happy to help.
You can contact us on 0203 725 5830 or you can schedule a call by clicking HERE
The Money Hub Limited Suite 7 Hadleigh Business Centre,
351 London Road, Hadleigh, Essex, SS7 2BT.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.