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14 Reasons to Remortgage
Often, your home is your largest financial asset and the loan secured by it - your mortgage - your greatest financial obligation. It only makes sense, therefore, that you have a good understanding of your mortgage and keep a vigilant eye on it. This means being open to remortgaging.
Remortgaging is the process where you evaluate your mortgage situation, looking at the interest rate, the amount of your monthly payments, your term, and the equity you now have in your property - and then improving your financial position! There are many reasons for remortgaging and at Clifton Private Finance, we believe we’ve encountered them all. To learn more about what you can do with your mortgage and how you can best use your most powerful asset to your advantage, take a look at some of the top reasons our clients remortgage.
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Remortgaging for Rate
Making sure that you’re paying the lowest rate is one of the primary reasons for remortgaging. Once your current fixed rate starts coming to the end of its term, it’s important to look around and see the best rates you can obtain going forward.
One option is to remain with your current lender and switch mortgages with a product transfer. This means you don’t look outside the lender, but merely take their offer of a replacement mortgage (usually, a new fixed rate term). It can be quite simple and, because you remain with the same lender, is a very tempting option. However, a product transfer rarely represents the best rate available in the market and you could be paying thousands of pounds more than you need to.
Remortgaging when your current fixed term is up means looking across the whole market for the best available rate. Even though there’s a little more administration and the extra hurdle of an affordability check to pass, the savings are often well worthwhile.
BONUS: Remortgaging for Flexibility
Often, borrowers find themselves locked into a mortgage that doesn’t offer the flexibility they’re after. This can, for example, be due to very strict (and expensive) ERCs and other fees. When remortgaging for rate, it’s always a good idea to delve into the terms and conditions and make sure you’re also remortgaging to a flexible option that won’t lock you in for many years. While fixed terms greater than five years may look enticing, if the interest rate drops a lot in that time, you’re going to be overpaying for a long time.
Working with a specialist like Clifton Private Finance means you won’t make the mistake of skipping over the conditions of your mortgage and will maintain a good position should something better come along in a few years’ time.
Learn more about product transfers and remortgages in our knowledge base.
Remortgaging for Capital
The second most common reason for a remortgage is to release some of the equity tied up in your home for use. A combination of factors can make your home a strong asset to leverage against future lending, from the simple fact that you’ve paid lots into it to its rising in value thanks to market conditions. When you have money locked in your home - known as equity - this can be used as security against future lending.
In short - you can remortgage to get cash for other use.
To understand your growing equity, consider the following simplified example:
Remortgaging in this way, releases the money poured into the house and effectively resets the mortgage, but how can it be used?
Remortgage Capital Use #1 - Home Renovations
One of the most common uses of capital remortgages is to fund home renovations. By using the money in this way, the value of the property is almost always improved, making it a powerful investment that can actually result in net gains. Consider Johan and Maria’s home - if they undertake a full loft conversion, adding a new master bedroom and en-suite, it might cost £35,000 but add £50,000 to the value of the house. In this way, the investment you put into your house can keep paying for itself - and when you go on to sell the house in the future, you gain through a return on that investment.
Plus you are able to enjoy years of a more spacious, more modern, home.
Lenders are typically always keen to provide remortgages for home renovations, making them an effective way of improving your home.
Remortgage Capital Use #2 - Helping Family Buy a Home
The money that you release on your home can be used to give your children or grandchildren a helping hand getting a house of their own. With the substantial amount of capital it is possible to raise, you can provide a generous gift that forms the deposit on a new home for other members of your family.
The rules on gifted deposits are strict - you cannot loan the money, but must freely give the funds with no expectation of their return. This means that remortgaging to help family in this way is not a viable personal investment, but it is an extremely kind and generous thing to do.
Remortgage Capital Use #3 - Buying a Second Property
You may be looking to buy an additional property. This could be a holiday home, either in the UK or abroad, an investment to rent out, or a city flat to live in during weekdays to cut out the commute. A remortgage on your current home is a good way to raise a substantial deposit and ensure you get better rates all round.
A remortgage is not the only way to leverage the equity in your home to secure an additional property. If you are looking to become a landlord and grow a network of rental properties, you could consider a portfolio mortgage, which combines multiple mortgages into one, enabling you to use the equity built up across the entire portfolio to expand further.
Remortgage Capital Use #4 - Start a Business
Many people consider remortgaging their family home to provide the capital needed to start a new business. At Clifton Private Finance, we advise caution.
This path is possible, and there are several reputable lenders who will provide remortgages for business startup investment, however, it is considered high-risk, as a new business venture could fail and leave you in a struggling position regarding mortgage repayments.
If you have business funding requirements, then we advise that you speak to the Clifton Private Finance business loans team, who will be able to advise you on the many options available to help give your business the kickstart it needs.
It is also important to note, that lying or hiding your intended use of the capital you are raising through a remortgage is fraud. Under no circumstances do we support obtaining a remortgage through misinformation and then using the capital gained to undertake a risky business venture. It is essential that you are open and honest from the outset, giving our specialist advisors the information needed to help you raise the capital you need.
Remortgage Capital Use #5 - Debt Consolidation
One of the great advantages of a mortgage is its low rate. Because a mortgage is secured on a significant tangible asset - property - it is considered one of the lowest risk loans by lenders, and enjoys the best interest rates on the market. In many cases, a mortgage rate is as much as ten times lower than spiralling credit card and overdraft rates.
Consolidating your debt by getting a remortgage, paying off all other higher-interest debts, and managing your finance with a single monthly payment is a well-considered and wise strategy for improving your financial standing and moving to a debt free status.
Speak to a Clifton Private Finance advisor if you are looking to refinance your debt through a remortgage - we will advise you on the best strategy to bring your existing debt burden to a manageable level with superior rates and the flexibility to ensure future problems are avoided.
Remortgage Capital Use #6 - Large Purchase
The potential size of the capital freed through a remortgage makes it perfect for use when looking at large purchases, such as cars, caravans, or high-end specialist items. The low rates associated with mortgages are typically superior to an alternative loan directly tied to the asset - such as car finance - making a mortgage an effective way to keep costs low.
Remortgage Capital Use #7 - Something Fun
The money you have poured into your home is yours - and there’s absolutely nothing wrong with using it in whatever way you like. Our hardworking clients look to low-cost remortgages to release the funds in their property for such things as:
- Funding a family wedding - Enjoy a the celebration you deserve by making use of your largest asset to keep rates low.
- Enjoying a once-in-a-lifetime holiday - Of course, there’s nothing stopping you releasing equity in your home again to have a second, third, or fourth once-in-a-lifetime holiday in later years!
- Funding that hobby - Don’t put off doing something you know you’ll enjoy because the cost of entry seem prohibitive.
- Improving your education - Using your home equity to boost your knowledge and advance your learning will pay dividends in the long run, as well as give you a lot of enjoyment and personal satisfaction.
Restrictions on Remortgage Capital Use
Remortgaging for capital opens so many doors that listing them all here would be impossible, however, there are a few legal restrictions that must be adhered to. You may not use the money raised through a remortgage to:
- Fund terrorist organisations or other criminal activity - For obvious reasons, your remortgage cannot be used for anything illegal.
- Gamble - In many cases, this may also include paying off existing gambling debts, so discuss with your advisor to check the specific terms of your mortgage agreements.
- Make speculative investments - Including cryptocurrency, peer-to-peer lending, and other high-risk ventures.
- Lend to other people - If you plan to use the money to help anyone else, you must disclose this from the outset.
Remortgaging Due to Improved Circumstances
Like remortgaging to get an improved rate, other reason to consider a remortgage is that your financial circumstances have improved. When you are in a better position financially, you can often remortgage to take advantage of your new position, resulting in a lower monthly payment or shorter terms. This might be because
- Your income has improved - When your income is higher, you have access to larger loan values. This may enable you to release some equity in your home, or obtain superior rates based on your loan-to-income (LTI) ratio.
- Your credit score has improved - Your credit score will have been a significant factor to your initial mortgage rate. If you have significantly improved your standing, then it is often worth remortgaging to get the rate you always deserved.
- Your house market value has improved - If your house becomes worth significantly more money, perhaps because of changes to the local area (such as a new top-rated school, or massive growth in employment), then you can remortgage to a better rate by taking advantage of the lower loan-to-value (LTV) it will now represent.
Remortgaging Due to Relationship Changes
A change to your relationship status often triggers a remortgage. Separation and divorce can mean one person taking over the entire mortgage and remortgaging to buy out the leaving ex-partner, or funds may need to be released through a remortgage to pay for other costs.
Speak to a compassionate Clifton Private Finance consultant to understand your options following a separation to ensure that any children remain secure in their home while the finances are properly reassigned.
Remortgaging to Become a Landlord
If you are looking to rent out your old home then you will need to change the mortgage from a residential one to a specialist buy-to-let (BTL) mortgage. This could remain a repayment mortgage, or change to an interest-only mortgage with a lower monthly cost to maximise your monthly income from the rental.
CPF’s dedicated buy-to-let specialists can help you remortgage your property to get the best deals for letting, potentially releasing additional equity in the process to help you start your new position as a landlord with a modernised, refurbished property.
Remortgaging to Refinance an Interest-Only Mortgage
If your interest-only mortgage is coming to the end of its term, your options are to sell the property to clear the original mortgage - hopefully profiting considerably in the process - or to remortgage to a repayment structure to keep the property permanently.
At Clifton Private Finance, our BTL and residential mortgage specialists can work with you to get the very best rates, making the most of the higher market value your property will likely represent to clear any existing BTL balance with a low-rate repayment mortgage.
Remortgaging with Clifton Private Finance
Remortgaging can seem like a complex and time-consuming process, and it’s easy to feel put off - but with Clifton Private Finance, there’s no need to worry. Together we can re-evaluate your existing mortgage, look at the full market of mortgages and rates on offer, and get you a remortgage that lowers your monthly outgoings, releases capital, improves your flexibility, or all three at once!
Don’t delay when it comes to getting the best remortgage deal - you could be saving thousands of pounds every year. Call us at Clifton Private Finance today for a no-obligation consultation
