Remortgaging is the process of redeeming your existing mortgage with a new secured loan from a different lender. There are many reasons why a borrower may wish to remortgage. The most common reason is derived from necessity. When you initially acquire a mortgage, in most cases, you will be advised to sign for a fixed interest rate over a 2, 3 or 5-year product term. Fixed interest rate products provide security by allowing borrowers to accurately budget for their monthly mortgage payments. But, after the fixed interest rate expires, your mortgage will revert to a variable interest rate. Variable interest rates can fluctuate at any time by any measure. Being unaware of your interest rate reversion could result in significant unnecessary costs. Therefore, out of necessity, most borrowers remortgage to benefit from a new fixed interest rate product. Boon Brokers recognise the importance of this reason to remortgage. To ensure that our clients are aware of it too, we have developed new online systems that will automatically notify you via text and e-mail five months prior to your interest rate reversion. You may ask: Could you instead contact us closer to the time of reversion? Our response is that we want to service your mortgage requirements as soon as possible. As a mortgage offer is often valid for six months, we will try to arrange your mortgage, to secure the lowest interest rates possible, at least five months prior to its reversion.
Another reason for remortgaging is so that borrowers can benefit from a lower loan-to-value percentage. Loan-to-value (LTV) is a term that many borrowers fail to understand. In simple terms, LTV is your mortgage amount outstanding as a percentage of the estimated value/purchase price of your property. The lower the LTV percentage, the lower your interest rate. This is because, as your borrowing is of lower risk to the lender, when compared with higher loan-to-value requests, they are prepared to offer lower interest rates. Over the course of your life as a homeowner with a mortgage, if you are making capital repayments, your amount outstanding will fall. If all other elements stay equal, your LTV will directly fall as a result. On the same note, if inflation continues for properties in the UK, as it has historically, your property will increase in value. Both of these elements often occur simultaneously for homeowners. Therefore, when the time comes to remortgage, homeowners are likely to receive a lower interest rate than those with a higher LTV. Of course, the general external environment will have the most significant impact on your selection of interest rates.
When it is time to remortgage, many homeowners take advantage of the equity in their home and withdraw capital. Your equity is the difference between the value of your home and the outstanding mortgage sum secured to it. Equity is owned solely by you – the homeowner. As mentioned previously, over time, for the reasons explained, your property’s loan-to-value percentage is likely to fall. Therefore, your equity is likely to rise. In practice, through a new lender, you can withdraw a portion of this equity as capital by borrowing a larger mortgage sum than your current amount outstanding. The difference between your new mortgage balance and your previous balance, that has been redeemed, will be the sum that you can withdraw. Remortgaging presents an excellent opportunity to withdraw capital for many different purposes such as:
- Home improvements
- Raise a deposit for another property purchase
- Divorce settlements
- Other personal & business purposes
Rather than remortgaging when a product term expires, some homeowners favour applying for a further advance. A further advance is additional borrowing from the same lender. The further advance will have a different interest rate to your first charge product and will act like a separate mortgage. If you merely wish to acquire a better interest rate, and not withdraw capital from equity, a product transfer with the same lender may be suitable. Your adviser at Boon Brokers will advise on whether a remortgage, further advance or product transfer is more appropriate for your circumstances.
There are many other reasons why a consumer may remortgage. If you are hoping to remortgage in the future, click the ‘Contact Us’ button and submit an enquiry form. You will receive a free consultation with one of our advisers to discuss your requirements in depth.