We’re all familiar with the idea of changing our mobile phone every few years when our contract ends and we’re placed on a more expensive/less enticing plan. It's a similar story with mortgage deals.
When you take out a mortgage, you will likely have had some form of ‘deal’ on it, whether that’s a Fixed Rate deal or a deal on a variable rate of some kind, perhaps a Discounted rate. The deal will most likely have a set time limit that it runs for.
For simplicity’s sake, we’ll take the example of a 2 year fixed rate mortgage, with an interest rate of 1.5%. At the end of the 2 years, your interest rate will most likely revert to the Lender's Standard Variable Rate, say 3%, and this would mean that your monthly repayments would significantly increase unless you take action.
This scenario is quite common for our clients: They’ve come to the end of a deal and they’re looking for a better rate of interest than their current Lender's standard variable rate.
It's worth noting that because your Lender was the best option for you at the start of your mortgage, they may not necessarily be offering the best deal now. For various reasons, there isn't any single Lender that will always 'top' the list of best deals.
In some cases, people may come to the end of their mortgage deal and decide that they want to pay off an extra chunk of their mortgage. This is something that can be facilitated in the remortgage process and may in fact lead to you getting an even better rate of interest, as you will then have a lower loan to value. Generally speaking, the lower your loan to value ratio, which is the amount you borrow against your home's value, the better the deals may become. Although Lenders offer deals in 'bands' - 90%-95%, 85%-90% etc, they don't all typically have 5% steps. One might offer deals at 80% - 90% and another at 75%-85%, thus creating some overlap. A good Adviser will identify where you are placed and may ask if you're able to make any overpayment. The bandings are quite rigid but, unless the calculation is made, you could miss out on a better deal for the sake of a phone call.
Talking of overpayments, most Lenders allow either lump sum and / or regular monthly overpayments to be made on mortgages but beware, there are usually limits and you'll incur a penalty if you exceed them - especially so during any 'deal' period. Remortgage time is a good time to consider any major mortgage reduction you may be thinking about, as a small window of opportunity exists between your old deal ending and the new deal starting, when an unlimited overpayment could be made without penalty.
Conversely, remortgage time is also a good time to consider any additional borrowing you need too. Whilst most Lenders will consider a request for additional borrowing at any point, combining the extra borrowing with your main mortgage, rather than as an extra loan, has advantages. For example, if you have two loans running alongside each another, that's potentially two sets of fees as each one comes up for review, two separate deal end dates making it harder to align all the borrowing on one deal and potentially two different rates for your borrowing. Again, an adviser will be able to explain your options in detail.
When considering raising capital, it’s incredibly important to do so in the knowledge that this money is being added to the balance of your mortgage (which is a type of loan) that is secured against your home. Thus, the disclaimer of ‘Your home may be repossessed if you do not keep up mortgage repayments’ is something to keep in mind. Your mortgage adviser will, of course, do a fact find with you and a budget planner to see if capital raising is a viable option for you. Your adviser has a duty of care towards you as a client and will only recommend products/loan amounts that are affordable for you.
This aside, the process for doing a capital raising remortgage is similar to processing a ‘normal’ remortgage. One of the differences being that you may be required by some lenders to provide quotes that have been provided by the contractors who will be undertaking the renovations.
Whether you're looking to keep to the same borrowing, reduce or increase your borrowing, it can be useful to think of a remortgage as simply purchasing your house again, but without the hassle of having to move! You’ve already got your deposit (the amount that you already own of the house's value), and any extra monies you are looking to raise is reducing your deposit, whilst anything extra you want to overpay is increasing your deposit. The mechanics of paying off part, or increasing your borrowing, will vary slightly depending upon your Lender and your situation.
You can read more about the remortgage process itself in this article, it’s a similar process in principle to the purchase process.
If you’re interested in remortgaging your home and would like to discuss your options with one of our advisers, simply send us an email or call 01522 540777 to book an appointment.
