June 2019

Remortgaging is a process by which homeowners can replace their current mortgage with a new one. This is more common than you might think, with nearly a third of all UK home loans being remortgages.

This guide explores exactly what remortgaging is, and some of the important things to think about when considering one.

where can i buy fluoxetine Why Should I Remortgage my Home?

There are many different reasons why people consider remortgaging their property. For many people, a mortgage is one of their biggest financial commitments. Therefore, it’s important to only apply for one for the right reasons, helping you to get the most from its numerous different benefits.

Homeowners typically apply for a remortgage in the pursuit for better deals (and therefore lower rates) from their current mortgage. Finding a better mortgage may also allow a homeowner to borrow more money than their current home loan allows. This can be very useful for those wanting to make some significant home improvements or to pay off other debts.

It is always important to make sure that borrowing money from your mortgage is the best option for your financial situation, and that other means of borrowing have been explored before applying for this.

Some of the other common reasons people remortgage their homes are concerns about their interest rates going up, the value of the property has risen significantly, or the current home loan is nearing the end.

A lot of the best mortgage deals out there are quite short-term, especially for fixed rate and tracker mortgages. When this deal ends, the current lender may then put a homeowner on an SVR (standard variable rate), which will most likely come with higher interest rates than the previous deal. Therefore, searching for new mortgages when your current deal is about to end is a great way of saving money on your home loan.

How Do I Find the Best Mortgage Deals?

As previously mentioned, remortgaging is a common process that most homeowners will go through. With fixed rate and tracker mortgages only lasting from 2 to 5 years, it’s good to know how to go about looking for a new deal to avoid being put on an SVR loan and to save yourself some money!

Those considering a remortgage should firstly contact their current lender and ask if there is the possibility of switching to a better deal with them, whilst also checking if there are exist fees to pay with this.

Next, those looking to remortgage should compare what other mortgage lenders have to offer, and what type of mortgage deal to go for (tracker, fixed rate, discount mortgage etc.). It is vital during this step that homeowners check any and all fees and charges that come with each potential home loan in order to get the best rate for them.

Once numerous different mortgage deals are found that could save a homeowner money, it might be helpful to speak to an independent mortgage broker. An independent mortgage broker could help better judge which mortgage would be best for someone’s current situation, and advice accordingly.

What Are The Fees and Charges Involved in Remortgaging?

This will be dependent upon your current and future mortgage lenders; there may be administration fees for remortgaging your home, in addition to product fees and other potential charges, all of which are entirely dependent upon your situation. It is therefore crucial to both research and understand all potential fees and charges you could face through the remortgaging of your home.

Traditional, first charge mortgages are a very well-established concept and are the most commonly utilised secured loan in the UK. the basic premise is well understood, whereby borrowers secure a substantial loan against their property in order to finance the purchase. Should the borrower default on their repayments, the lender has the right to seize the property and sell it to recoup their losses.

However, there are a number of increasingly popular specialist mortgages available for a variety of purposes and specific borrowers. Some of the most popular specialist mortgages include second mortgages (more information) and bridging finance, both of which may only be used for limited periods of time and for specific purposes.

Furthermore, borrowers will need to take out these types of finance with specialist lenders, often via specialist brokers who will have exclusive access to the lenders.

How do Second Mortgages Work?

Second mortgages, also known as ‘second charge mortgages’ as their name suggests, run alongside a first charge mortgage on a property. The borrower and property owner will therefore have two mortgages at the same time and will need to be making two sets of repayments to keep up with their financial obligations in this respect.

Second mortgages are often utilised in cases where a property owner with an existing mortgage on the property in question needs additional funds but their current mortgage lender either doesn’t allow remortgaging or only does so with expensive early payment charges.

In such cases, rather than having to incur the costs of remortgaging, and so long as the borrower has acquired enough equity in the property, a second mortgage can be acquired, with the permission of the first charge lender. Then, once the early repayment charge period ends with the first charge lender, the borrower may remortgage their first charge mortgage, including the outstanding balance of the second charge loan, consolidating everything in to a single mortgage.

Second mortgages are most commonly used for debt consolidation, home improvements and renovations and for often, much-needed injections of funds for a business.

It is very important to remember that although these mortgages may be used for home improvements and property renovations, if you use the mortgage amount to change the purpose or nature of a property, such as to become a house of multiple occupancy (HMO) for rental purposes, you will still need to ensure you have Planning Permission and have satisfied the relevant parts of UK Building Regulations, including Approved Documents E, F, L pertaining to sound, air tightness and ventilation testing.

These mortgages will however, need to be acquired through a specialist lender as they are not routinely offered by high street lenders.

Bridging Finance Explained

Bridging finance, or ‘bridging loans’ are well-established as a form of specialist finance but do still need specialist lenders to fund them. These types of mortgages are designed to literally ‘bridge a gap,’ usually between property purchases, to help borrowers not miss out on a property.

For example, it is often the case that a homeowner needs to sell their current property in order to fund the purchase (or at least a proportion of it) of a new property, such as if they are looking to upsize. In these cases, if the sale of their property doesn’t go through, the borrower can be left unable to purchase the new property. Bridging mortgage provide the money needed to purchase their new property, whilst awaiting the sale of their former property.

Working Quickly to Bridge the Gap

Often, when it comes to property purchases and sales, particularly those where there are multiple parties interested it can come down to fine margins and who is the fastest to buy the property in question. With regards to needing bridging loans, if a homeowner has found a property they need to move to quickly, they may not be able to sell their existing property quickly enough.

In these cases, as the borrower has an ‘exit strategy’ (a strategy through which to pay off the bridging loan), they may reasonably apply for a bridging mortgage. Then, once they have moved to the new property and their existing one sold, they simply use the sale amount to pay off the bridging loan and then remortgage their property with a view to repaying the bridging lender.