Are you considering remortgaging your home to release equity to get more space? Or fund an extension or home improvements?
Then you’re not alone. More and more of us are cashing in the value we’ve built up on our properties. Remortgaging is allowing more people to turn their existing homes into their dream homes.
It’s not difficult to shift your mortgage from one lender to another. Often you’ll get a better deal, without the hassle of moving home.
Why remortgaging deals are so competitive now
The low-interest remortgaging deals available now are among the most competitive ever. That’s because lenders have cut fixed-term and tracker rates in the past two years to record lows.
This on the back of the Bank of England’s 0.25% base rate. February 2017 saw an eight-year high in remortgaging. Rising house prices, linked to the shortage of homes for sale on the property market, was also a factor behind this.
In fact, Mortgage Finance Gazette says the number of people remortgaging rose by 35% in the year to February.
That’s the highest since January 2009. The trend’s likely to continue as the base rate doesn’t look set to change anytime soon. The consensus view is that the Bank of England will keep the rate at its record low into 2018.
The expected slowdown in economic growth that uncertainty over Brexit will cause is why.
Your options for remortgaging your home to release equity
Rising house prices mean many homeowners have accrued equity. If this is your situation, then you might well want to look at a cheaper remortgage deal. You could cut your monthly repayments by climbing the loan-to-value bands. Or release cash for home improvements. You might find you can do both.
“Those who can remortgage to a lower rate can potentially find that they can borrow more money. This is while keeping monthly payments the same,” says Thisismoney.co.uk.
With mortgage rates so competitive, remortgaging your home to release equity may seem like a clever way to borrow cheaply. But borrowing more means paying more interest. So if home improvements are your aim, is remortgaging a better idea than other loan options? Here’s what you should think about.
First, work out your equity
Equity is the share you own of the value of your home. Let’s say your home is worth £200,000 and your mortgage is £150,000. Then your equity is £50,000. There are two ways you build up equity. Either your home value appreciates or you pay down your repayment mortgage.
Your current lender will tell you the value of your home, compared to your outstanding mortgage. But it might charge a fee. To avoid this, you can get estimates first from three estate agents and use the average.
Next, compare your remortgaging options
There’s plenty of information online about remortgage deals via comparison sites and best buy tables. Most remortgaging deals fall into two categories: fixed rate or variable. With a fixed rate, your repayments are set for the length of the deal, which can give you peace of mind.
With a variable rate, they can and will usually move up and down, normally due to changes to the UK economy. Variable rates usually fall into three categories.
- Trackers: these track the base rate
- Standard Variable Rates: these roughly follow the base rate by usually 2-5%
- Discount Rates: these offer a discount from the SVR, usually for 2-3 years
You’ll need to know your loan-to-value (LTV) to see what you can apply for. The impact of a lower LTV can save you a huge amount of cash. The more equity you’ve got, the lower your LTV and the better the interest rate you’re likely to get offered. So work out how much you want to borrow first.
Then look at your current mortgage repayments and the cost of your potential new repayments. Decide if you can manage larger monthly outgoings. Factor in any exit fees from your current mortgage and arrangement fees for the new mortgage. If they’re hefty, they could eat into the equity you are releasing.
Consider what other loan options would cost
Before jumping ship, think about your other options for funding home improvements. If you don’t need a big sum, you could consider asking for a further advance from your existing lender.
Some lenders will have set rates at which you do this. Others will give you a choice from their standard mortgage deals. You could also think about getting a personal loan or a credit card loan.
You have to pay these off more quickly so you’ll have to pay more each month. But in the end, you won’t get charged as much in interest. It’s all a question of doing your sums and working out what you can afford.
How to get the best remortgage deal
It’s always worth asking your current lender what they’ll offer you. Many have what they call ‘product transfers’. After all, they don’t want to lose your custom. You also won’t have to go through the affordability checks other lenders will make. If you’ve done your homework, found the remortgage product you want, and been accepted, congratulations.
If not, consider using a mortgage broker. They’ll assess your circumstances.
Then they’ll and help you find the remortgage deal that saves you most money. Martin Lewis of Moneysavingexpert.com says:
“Chances are that using the right type of broker will be the best bet for most people. They can whittle down the top deals quickly and offer you an extra layer of protection if things go wrong.”