What is Remortgaging?

To put it simply, remortgaging is the process of switching the mortgage you currently have, either to go over to another lender, or to release some money against the property.

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Why do people remortgage?

As well as being a way to ease financial issues, there are many other reasons why people remortgage. Remortgaging for home improvement allows you to release some funds to pay for any work that needs doing in your house, which can be an incredibly costly process. Some people also consider remortgaging to buy another property. If they are looking to buy a holiday home and they don’t have the cash readily available, then remortgaging can be an option.

Remortgaging early

If the thought of remortgaging is something that appeals to you, but you are tied in with your current mortgage deal then it is possible for you to remortgage early. You may assume that remortgaging early is a positive move and one that would be welcomed by lenders, but unfortunately, paying it off early means they will lose the interest you would have been paying monthly on your existing deal. In order to ensure they don’t lose out completely, lenders will give you early repayment charges (ERC’s), the ERC’s are usually a percentage of your loan, but it varies from lender to lender. More often than not they can be quite high, so it’s important to take the time to weigh up whether it’s worth remortgaging early.

How to remortgage

You firstly need to check if your current mortgage plan has any fees for switching and if you wanted to pay them or not. You will also need a lot of the documents that you would have had to supply when applying for your first mortgage.

You will definitely need proof of your income and if you are self-employed, a lender will want to see your accounts from the last three years.

Don’t rush into the first deal that falls at your feet, shop around. If remortgaging isn’t going to be a simple process and you have factors such as bad credit or self-employment to factor in, then it will be worth heading to a specialist to ensure you are getting the right deal for your situation.

Unencumbered property

An unencumbered property is one that is free of any mortgages and signifies that the property was bought outright by cash buyers. If you have paid off your mortgage on your current property then your property is also unencumbered. So, the question is, can you remortgage an unencumbered property? The short answer is yes, but there are factors to consider. One of the factors is why you are looking to remortgage on an unencumbered property. You may be looking to move to a more expensive house than the one you are currently in, or you may be looking to raise funds for a buy to let property. You also need to consider, your income and work out how much you will be able to borrow versus how much you need. Having outstanding debts or bad credit can potentially hinder your remortgage application, so bear that in mind.

Remortgaging with bad credit

Remortgaging with bad credit is possible, you just need to make sure you avoid high street lenders and approach a specialist. Lenders don’t want to deal with you because people with bad credit are a risk, your bad credit may be a symbol of not being able to repay your loans.

Whereas, a specialist will have experience in your specific scenario and will do their best to find a way for you to remortgage, even if you have bad credit.

Remortgaging pros and cons

  • Remortgaging gives you the opportunity to free up cash if you are in a period of financial difficulty, many people opt to remortgage because it gives you a way out of debt that may be hanging over your head.
  • It also gives you chance to switch your mortgage to one that is better suited to you. 

However, there are some risks that remortgaging presents:

  • Like with most things that use your home as collateral, there is a risk of repossession if you do not make your payments on time.
  • Remortgaging isn’t necessarily a quick and easy process, so if you wanted a quick fix, second charge mortgages would be a better option.

Remortgaging alternatives

If you have decided that remortgaging isn’t for you, then it’s worth considering the other options that are available.

A second charge mortgage is a secured loan taken out by a homeowner against their current property as a way of raising extra money, but is only an option if the borrower has at least 15% equity in their home. Second charge mortgages are often used in place of remortgaging because they are quicker to set up and on the rare occasion that someone’s mortgage rate is unbeatable, a second charge is a better option.

If you are looking to remortgage to put some money into a buy to let, then it may be worth considering an avenue that is a little more niche. There are specific mortgages available that are for those looking into buy to let. Buy to let mortgages are similar to the way a standard mortgage works, but they have higher interest rates and fees. Most buy to let mortgages are often interest only, so you only pay the interest amount each month and then you pay the full amount at the end of the mortgage term.

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