Remortgaging a Property: The Reasons and Benefits of Doing So
Buying a new house or a brick and mortar business and stepping onto the property ladder is a huge deal. However, houses are expensive assets. Some may be able to outright purchase a house, but this is very rare, and so, many will need a mortgage secured against it before they can move in.
For the majority of us, a mortgage will be one of the biggest financial commitments. In recent times, many can’t even afford a mortgage and the number of people renting in the UK has doubled in 20 years . However, if you’re breaking free from “generation rent” or finally moving out of your parents' place and are ready to buy a property, chances are you will need to start researching your mortgage options. Like everything in life, we tend to shop around, from the cheapest food products in the supermarket to the best holiday deal online. Shopping around for a mortgage is no different, which is why we’ve put together a blog on remortgaging, and how this can benefit you.
Simply put, a mortgage is a loan used to buy and secure a property or land. It’s a legal agreement made by the lender (a bank, building society, specific mortgage provider) and the person(s) taking out the loan. This money is lent out and secured against the value of your home but is paid back over time at interest. Most mortgages run for 25 years, but can be shorter or longer depending on financial circumstances.
So, if you’re not in the small rich percentage of the UK and don’t have a few hundred thousand pounds to spare to buy a house or business property, chances are you’ll come across mortgages and lender at some point in your life.
You’ve got a mortgage and are paying it back over time. But, you may get further down the line and realise remortgaging is a good option considering your circumstances. But what exactly is remortgaging? And why do people consider it? Andrew Lee Property Lawyers can explain and help.
A remortgage is where you either replace your existing mortgage with a new one or are looking to borrow more money against your property. It’s, essentially, a transactional switch and can be done with an existing lender or a different one. Like a mortgage, a remortgage is secured against the same property but, this time, your terms, deal and repayments may be different.
There are some real benefits to remortgaging your property, and many can save some serious money through the process. However, it might not be the right option for some people. Below, we explore the reasons why people do it and the many benefits of it.
The reasons why and the benefits of remortgaging a property
With our current economic climate, many are looking to improve their financial situations. It’s no surprise then that around a third of UK home loans are remortgages. But, what are the benefits of remortgaging and should you consider it too? Read on to find out more.
To get the best deal possible, we all need to research and shop around for it. It may be more convenient to stick with your current provider, but there might be a better deal out there that could save you up to hundreds of pounds each. Before switching, double-check if you have any early repayment charges or exit fees to pay with your current lender.
Transfer of equity or freeing equity
Equity is a legal term that refers to how much of the property you actually own. For example, if your home is worth £200,000 and your outstanding mortgage is £100,000, then your equity is £100,000.
A transfer of equity usually involves adding or removing a person from the legal title of the property (normally through marriage or divorce, for example). This equity or transfer of equity can be done through remortgaging with an existing lender - so, this value can then be used to “buy out” the other person, or include a new person and additional income into the mortgage situation.
Freeing up any equity can be done by remortgaging too. For example, if your home is worth £200,000 and your equity is £100,000 but you need £50,000, you can remortgage to free up this, so you’re now paying back an outstanding £150,000. Many people consider this for a number of reasons including home improvements (see below), to help buy a second property/holiday home, to be filtered back into the Bank of Mum and Dad in order to help your child buy their first home or to help yourself or family through difficult financial circumstances.
Mentioned above, releasing equity when remortgaging can help you invest in your home or business and any improvements that need to be made. From a new kitchen or bathroom to a full home extension or loft conversion, some home improvements can boost the value of your property from 5, 10 or even 20%! Considering a remortgage now may be incredibly financially rewarding when the time comes to selling up. When it comes to remortgaging, for this reason, lenders will want to see proof of what you’re using the money on to know it’s a risk-free move for both you and them.
Whether you’ve had a pay rise or have inherited some money, financial situations can change and get better from the time you first took out a mortgage. With that in mind, there may come a time where you want to increase the amount you’re paying towards your mortgage debt so that you’re in a better position later one. However, you might find that your original plan and lender may not allow for an increase in payments, or what is called an overpayment. Switching and remortgaging with another lender may mean you can pay more or change to a deal that will take into account your new situation or allow for overpayments in the future.
If your home is worth a lot more than it was when you first purchased and took out a mortgage on it, then you might find you can remortgage in a lower loan-to-value band.
Loan-to-value is the ratio of a loan to the value of an asset purchased. To work out yours, divide your outstanding mortgage amount by your property’s current value, and then multiply this result by 100.
If you’ve done your sums, spoken to a mortgage advisor and do find that your loan-to-value is lower, you will be eligible to remortgage in a lower loan-to-value bracket and will, therefore, have better options available.
How a conveyancing solicitor can help
A conveyancing solicitor will be able to offer advice regarding mortgages and help talk through your financial options. They’ll also be able to help advise regarding conveyancing fees as some mortgage deals also cover valuation and conveyancing fees, whereas some might not offer this.
Andrew Lee Property Lawyers - property and mortgage solicitors
At Andrew Lee Property Lawyers, we can help you will all things to do with the conveyancing process, from preparing deeds and deposits to contracts and transfer of equity. Mortgages are also a crucial, part of our services and we can offer advice regarding the best options for you and your business, including remortgaging your property. For more information on our expert legal services, contact us today on 01622 750 101.
