What you need to know
For any homeowner, the prospect of home improvements could be an exciting thought. However, the costs of such projects can be expensive and may require some additional financing. This is why plenty of homeowners choose to remortgage their home in order to gain the funds necessary to make the improvements that they want.
Who is able to re-mortgage?
Remortgaging is becoming more common, it allows you to take equity from your current mortgage and invest elsewhere. For example if your property value has risen by £60,000 and you wish to take £30,000 for a loft conversion, you could add £30,000 to your current mortgage. You may also wish to apply to another lender.
On first thought it may seem a precarious decision due to the further debt; however low mortgage rates are one of the most attractive reasons why you may be able to remortgage to a fixed-rate deal which will help keep the costs at a minimum.
In what circumstances can you re-mortgage?
If your current mortgage deal is coming to an end, or has already moved to a follow-on rate you may consider a remortgage. In addition to this, many people apply if they choose to add a considerable amount of changes to their home, such as a loft conversion, a new garage, extension or something that requires a significant amount of money. With home improvements, lenders appreciate that this could dramatically increase the property’s value which is an excellent reason to remortgage. In these cases, you should find a lot of assistance from lenders.
If you are concerned that you are not eligible, you should note that even if you are on a fixed mortgage rate that you are legally bound to for a set amount of years, the lender will often apply an early repayment charge. You will need to look at the charge for this, often 2-5% of the amount you have borrowed initially.
How do you go about arranging a remortgage?
If you want to remortgage, the process is a relatively simple and easy task, which requires a little work from you first. Working with a mortgage broker will make this process easier and could save you substantial time and money.
There are no contracts to exchange and no heavy chains of paperwork and selling, it is simply negotiating a new charge. Often you will incur some fees up front, which include arrangement fees; these are charged by the lender to establish your new mortgage, the amount will vary depending on the provider and the mortgage deal you’re applying for. They can be charged as a fixed amount or a percentage of the total sum you’re borrowing.
You can either pay this fee upfront as a one-off cost or add it to your mortgage. Booking fees, legal fees, valuation fees and valuation fees but all of these will vary according to the size of your property etc. If you do not wish to move lenders and maintain your current one, by negotiating a better rate, this is possible. It is known as product transfer and you should discuss this with your current lender.
If you are moving to another lender, you will need to first discuss how much you wish to borrow for your home improvements. Then you must be sure that you meet the affordability criteria. For example you may be able to receive an amount that is five times your annual income however often it is four and a half times but it is important to note that the lenders do not require an upfront deposit.
How do they work?
When you are thinking about remortgaging, you must remember that it is different from taking out a mortgage. A remortgage is a mortgage that you use to pay off a pre-existing mortgage attached to your property. This added mortgage releases equity to you which you can use for home improvements. A remortgage will allow you to reduce the loan size and you are likely to be able to change to a cheaper rate which could be important during difficult economic climates. You must ensure that you have a healthy credit score too but once you have been approved, you can be sure to find plenty of benefits for your repayments and your home goals.
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