What is a re-mortgage?
A re-mortgage is the process of paying off an existing mortgage with the proceeds from a new mortgage that uses the same property/properties as security.
Benefits of a re-mortgage can include:
- A lower interest rate
- Lower monthly payments
- A shortened or lengthened term (dependent on goal)
- Ability to release cash held up in the equity of a property
Example 1 – lowering the LTV and reducing monthly payments.
A mortgage on a property had a LTV of 80% at the time of purchase – often the higher the LTV, the higher the interest rate as it is a greater risk to the lender if the property market crashed and the value of the property decreased.
Once an amount has been paid off the mortgage, there is the option to re-mortgage at a lower LTV (e.g. 60%) to try and get a more attractive interest rate, if lower monthly payments is the end goal then the term of the mortgage could also be lengthened to reduce these.
Example 2 – releasing equity as cash.
If a property is worth £200,000 and there is £80,000 remaining on the existing mortgage, there is £120,000 in equity. In this scenario, a re-mortgage of £100,000 would ‘unlock’ £20,000 of equity which can be taken out of the property as a lump sum. This is useful for customers with buy-to-let properties as the cash can then be used as deposit for the next property purchase to add to the portfolio or for other business property uses such as renovation to increase the value of the property.
There are still many things to consider when looking to re-mortgage property, including application fees, valuation fees, solicitors fees and exit fees – however these costs are often offset by the savings made by the new interest rate or the cash released.
Contact us today on 0345 5050 888 to discuss your options.
