How do remortgages work?

One of the major perks of property ownership and paying a mortgage is that it provides you with an asset. Over time, you can build up equity in your property and if you ever feel like you are struggling to make ends meet, you can remortgage your property to help reduce the strain.

How do remortgages work - what is remortgaging - image
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People choose to remortgage for various reasons, you may want to release a little extra cash to purchase say a new car or go on that once in a lifetime adventure. Or perhaps you want to make home renovations? Finally getting that dream extension built.

Debt consolidation is another common reason for people remortgaging as it allows you to reduce monthly outgoings and pay back debts within a realistic timeframe.

Remortgaging also allows you to secure a more competitive mortgage rate, another definite perk of the process.

How does it work?

Like shopping around and comparing energy tariffs, there are lots of mortgage deals available, with different interest rates and payments terms. If you find a deal you like you could end up switching from your current mortgage – this is essentially what remortgaging is.

As the average property owners largest monthly outgoing, there is absolutely no reason you should feel obliged to stay with the same mortgage provider for your entire life, so if you do find a better deal, go for it.

When Does Remortgaging Make Sense?

Before you decide to accept a new mortgage deal, it is wise to consider a few important questions first:

Check the Fees

Some lenders offer a fee-free mortgage deal to hook you in, but make sure you are aware of any administration, legal and valuation fees, as otherwise, this may counteract any savings you make via a remortgage.

Can you lower your loan-to-value (LTV)?

The more you can reduce your loan-to-value, the greater number of attractive mortgage deals will be available to you.

The LTV is simply the limit on how much you can borrow when compared to the current value of your property.

To work out your LTV simply figure out the outstanding mortgage amount and multiply by 100.

For example, if your outstanding mortgage is £200,000, but your lender values it at £250,000, 200,000 divided by 250,000 is equal to 0.8. 0.8 times by 100 – 80%, therefore, your loan-to-value is 80%

Early repayment charges

Does your current mortgage provider have an early repayment charge clause? Check your contract and/or ask them, because if you do, you may discover that you will have to pay a substantial fee that would make any savings made from remortgaging worthless.

Can you Remortgage with Bad Credit?

If you have bad credit, admittedly it is going to be more difficult to secure a remortgage, but it is still possible.

According to Mortgageable “Mortgage lenders look at your complete credit history when making an assessment, so if you have one missed payment on a bill from a few years ago, they are likely to be much more lenient in comparison to consistently missed or late mortgage payments.”

It is also worth remembering that the majority of lenders have their own unique assessment criteria, so if you are refused by one lender, you may be accepted by another.

Surprisingly, some lenders will even consider a remortgage for people with County Court Judgements (CCJs). The key factor within these types of applications is the date of the CCJ and whether you have shown an active attempt to repair your bad credit.

Where Should you Look for Remortgage Deals?

If you are considering remortgaging your property, you can find the best deals on comparison websites. You simply complete a questionnaire and will be presented with a variety of current remortgage deals from a selection of popular and lesser-known lenders.

Video – What is a Mortgage?

Interesting related article: “What is a Secured Loan?