Re-mortgaging isn’t a new idea and it’s been used in the mortgage industry for as long as we’ve been in it. Over the years it’s been thought to be a good idea, a bad idea, and even a dirty word at times. Like all areas of mortgages though, a re-mortgage needs to be the right option for you and considered on a long-term basis.
In many cases, a re-mortgage can free up some finances to allow you to live a more enjoyable life and remove some stress from your monthly outgoings or payments.
Why would you need to re-mortgage?
Re-mortgaging occurs in a number of different situations. There are a lot of reasons that a re-mortgage could be used or advised to be used. In addition to saving money, we find that the primary reasons our clients look to re-mortgage are because:
- Their current deal is due to end shortly.
- They’d like a better rate.
- The value of their property has changed significantly.
- Their circumstances have changed significantly.
- They want to raise capital for a significant purchase.
- They want to carry out home improvements.
- They’d like to buy a new car.
- They’re keen to raise funds to buy another property.
- They’d like to consolidate more expensive debts.
- They want to switch from interest-only payments to capital and interest payments but the current lender won't allow it.
These are the main ones, but there are a whole host of reasons.
How does re-mortgaging work?
Re-mortgaging simply means that you borrow more money against the value of your home.
You stay living at (and owning) your current property but you move your mortgage from your current lender to a new lender.
You might capital raise, or you might not. Either way, the new lender will require a valuation of the property just like any mortgage application, and a solicitor will need to carry out the conveyancing work.
These days, most lenders offer a free standard valuation and free standard conveyancing in order to attract you to their re-mortgaging products.
What are the pros and cons of re-mortgaging?
Like any product and certainly in the mortgage world, you should choose a solution that suits you and your situation. There are of course many pros and cons and these are the main ones that we can think of:
Pros of re-mortgaging:
- Your current deal is coming to end, and you want a better deal.
- You’ve seen an increase in the equity you hold in your property and feel you can obtain a better mortgage as a result.
- You want to pay off credit cards or loans (known as debt consolidation) in order to achieve lower monthly outgoings.
- You’d like to enhance your property by making home improvements such as an extension, kitchen/bathroom, or new windows.
Cons of re-mortgaging:
- If your mortgage is quite small, then there is very little to be gained by re-mortgaging.
- If you have early repayment charges on your current mortgage which will negate or reduce any saving you might make.
- Your circumstances have changed such as you may have recently gone self-employed and need to wait until you have built up your business before applying (typically 2 years).
- If you have incurred some adverse credit, which may stop a new lender offering its best deals, or even stop it from lending at all. In which case, we might have to approach a specialist lender, so we'd need to check that the rate of interest they are prepared to offer is suitable.
- Debt consolidation can also be a bad idea because you’re moving debt that isn't secured on your property to a mortgage that is secured on it. You’ll also end up paying it off over a longer-term so debt consolidation must be considered very carefully. There is also the possibility you may run up the credit cards again, so you have to be disciplined.
- If you’re already on a great deal, so there's no point in re-mortgaging at all. So please check first.
What situations usually bring about a re-mortgage?
As with any mortgage, it’s the person/people and unique circumstance that affect the decisions for a certain type of mortgage or product but there are some key situations that bring about the need to re-mortgage.
There are usually (but not limited to):
- The need to move to a better deal
- To raise extra capital.
In most cases it’s nearly always one of those two reasons. Sometimes, a re-mortgage is needed where you have an interest-only mortgage and the current lender requires the mortgage to be fully paid off by a certain date.
Can anyone re-mortgage?
Most people can re-mortgage if it makes sense to do so and you fulfil the criteria. If you have the equity in your property and it's affordable based on your income, then you should qualify for a re-mortgage. In some cases it’s the best thing to do and helps a homeowner to improve their property and increase the value of the asset they’re lending against. Most lenders will take this into consideration when you apply.
Usually, as long as you meet the right criteria as above, then you can re-mortgage.
Can you re-mortgage if you have bad credit?
It’s often possible, but it depends what type of bad credit you have. Bad credit can and does affect all types of mortgages and this will depend on the type of bad credit.
For example: A small default on a payment that incurred 4 or 5 years ago will probably be viewed more favourably than a missed mortgage payment incurred within the last 18 months.
The devil is always in the detail with this one and it’s a case-by-case situation (contact us now and we’ll help you.) It's always best to provide a copy of your credit report to us so we have the information we need to help you.
What are re-mortgage set-up and exit fees?
Re-mortgage set-up fees could include:
- A broker fee.
- A lender arrangement fee.
- A valuation fee.
- Legal conveyancing costs.
Some lenders offer a ‘fee free re-mortgage’ package to make their products more attractive by ‘removing’ many of these costs.
Beware though, as exit fees could refer to any early repayment charges on the mortgage to be arranged.
What is the re-mortgage process?
Most re-mortgages need to go through this typical process, and it pays to get the help of a mortgage advisor to help you.
A typical re-mortgage process will look like this:
1. Mortgage adviser issues Terms of Business to client.
2. Mortgage adviser completes questionnaire with client.
3. Mortgage adviser collects documents from client e.g. proof of ID, proof of residency, proof of income, bank statements.
4. Mortgage adviser produces illustration for product that is suitable. If client accepts recommendation, adviser applies to lender for decision in principle.
5. Decision in principle approved.
6. Mortgage application submitted to lender.
7. Mortgage application assessed by lender and valuation arranged by lender.
8. Mortgage application offered by lender.
9. Offer sent to mortgage broker, client, and solicitor.
10. Await legal completion.
How long does a re-mortgage take?
Depending on the situation you’re in and whether there are any complications in some cases it can be quicker or take a little longer.
In most cases a re-mortgage will take seven to eight weeks. We normally allow three weeks for an offer, then five weeks for completion. That's an industry average, so it can vary.
How much can you borrow when you re-mortgage?
This really depends on the value of your property, the financial situation you’re in, the reason for re-mortgaging, and more. It varies so much from lender to lender so contact us now and we’ll aim to answer this for you and your specific circumstances. We’re a friendly and helpful team so please do get in touch if you’d like any advice or to discuss your re-mortgaging plans.