- 23rd February 2020
- Posted by: Mark
- Category: remortgage
A remortgage is simply the process of switching from your existing lender to another one with a better deal. It’s slightly different if you are remortgaging to release equity and we’ll get into that.
People remortgage several time in the term of the mortgage, why wouldn’t you, it can offer you the opportunity to save money. There are a couple of reasons why you might not remortgage.
Remortgaging is no different from applying for any normal mortgage, that is exactly what you are doing. The difference is you already have a mortgage, you’re just looking for a better deal.
As with any mortgage the lender checks you can afford your mortgage repayments.
If your financial circumstances have changed, for the worse, this may affect how much you can borrow. If your home has plenty of equity this is not so much of an issue, the equity in your home counters the reduction in earnings. In other words you’re not going to be borrowing the amount of your original mortgage so your income does not need to be at the same level.
The flip side is that your property hasn’t increased in value as much as you’d like. Put simply there is little or no equity to counter the reduction in earnings. The lender will base part of their decision on your income, they want to know you can comfortably afford the repayments. You may find you cannot borrow enough to remortgage.
If you are earning more than before of this is not an issue but the next factor may be ……
Your Credit Score
To even be considered for those amazing rates you see advertised your credit needs to be A1, even then the LTV will play a part as well. It’s why we don’t normally advertise rates because until we carry out a check, we don’t know where you’ll fall in terms of the rate you can be offered.
If your credit score has dropped since you applied for your existing mortgage, you are very likely going to pay a higher rate of interest. You may get an introductory rate which looks good but it’s the rate you go to after the “offer rate” that matters. It may work out you are no better off, or even worse off.
The advice in this situation would be get your credit score to a high level. It will take time, it’s time well spent. The primary factors in mortgage lending rates are your credit rating and your LTV.
The split between those looking to switch to a lower rate and those looking to release equity is almost 50/50, it’s very close. Equity release is popular for larger home renovation projects like a new kitchen, extension, those sorts of larger projects.
This kind of remortgage will likely incur a higher rate of interest. Remortgaging works for a lot of people when it comes to equity release but it is worth looking into other options and compare the total cost to find out which one is really right for you.
Ultimately many go for convenience, if you have a mortgage, have kept up the repayments, have good credit and a decent income a mortgage is a pretty straightforward process. It can be worth looking at options such as savings. The amount you are looking to release will of course affect what options are really open to you. It worth looking at all your options.
Remortgaging works for millions of people, just make sure you look at all the pros and cons, as you would with any large financial commitment.