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The great advantage with mortgage borrowing to buy your own home is that your stake in the property steadily increases as the value of your home also grows. In this way, it is said that your equity (the difference between the outstanding mortgage and the market value of the property) steadily increases. The frustrating part about that, however, is that this – often quite considerable – equity value is effectively “locked up” in the property itself. Remortgages give people the chance to unlock that equity value and free up all or some of that money for them to spend as they wish.

The principle of a remortgage is rather like selling your home to yourself and buying it back again. Look at it this way: You have an outstanding mortgage debt of £100,000, but your home is worth £300,000. If you were to remortgage the property for £200,000, you have enough to pay off the former mortgage, retain a £100,000 equity in your home, but also pocket a further £100,000 to spend as you wish.   

But it’s not only as a form of equity release that remortgages make sense. We all know that markets fluctuate. What seems like a great deal one year is overtaken in a competitive market by an even better deal a few years later. The mortgage market is no different. It’s also highly competitive, with lenders competing with each other for your business – even when all the talk is of a downturn in the housing market. The terms on which you secured your mortgage from one lender when you bought your home may well be improved by another lender, equally keen on your business, a few years down the line. What’s more, your personal financial circumstances could well have changed also, putting you in a stronger position to negotiate a better mortgage deal.   

In these events, remortgages offer home owners the opportunity to switch mortgage lenders. The attraction of doing so might be the more favourable conditions of the new mortgage lender – a greater flexibility for example – or simply because the alternative lender offers a better rate of interest, earning you valuable savings over the life of the mortgage.   If this is the main reason for your looking to remortgage your home, there are a number of simple steps you can follow to weigh up the pros and cons:   

Step 1: Tell your current mortgage lender what you’re intending to do and ask about any penalty you will incur for terminating the mortgage prematurely. The chances are that your existing lender might offer you improved conditions or interest rates – and you might not need to remortgage anyway;

Step 2: Investigate the alternative mortgage offers and identify the one with which you might choose to remortgage;

Step 3: Add up any penalty from your existing lender and the registration fee charged by any new lender to work out the cost of the remortgage;   

Step 4: Work out your mortgage repayments with the new lender over a given period of time, compare them against those you’d be paying to your existing lender, subtract the costs you got in step 3, and see if it’s worth remortgaging;   

Step 5: If you decide to go ahead, make an application to the new lender;   

Step 6: It will typically take 4 to 8 weeks for your home to be valued and for the required legal work to be done; and then   

Step 7: You simply sign the new mortgage deed!

Remortgages can prove useful for two principal reasons:  

§          To allow you access to some of the equity tied up in your home by releasing the increased capital value; or 

§          To allow you to switch from a mortgage that no longer offers the terms and conditions that suit you to a more appropriate mortgage or one that’s offered at a better rate of interest.

The author of this remortgages article is Sarah Mattingley.

This article does not represent ‘financial advice’ as each persons individual requirements will be unique to their needs. If there is something in the article which you which to rely on then please check those details with any person with whom you arrange a financial product or service.

The views in this article represent those of the author and not those of Netbasic Limited.