Your mortgage journey will see both highs and lows, though in the end you will find yourself either settling in your dream home, living in a stepping stone property just to get your foot on the property ladder, later moving on up, or an investment property that will generate income for you.
No matter the route you took, there will eventually be a point in time where your initial fixed-rate or introductory period is coming to an end. At this point, there are a few options you can possibly look at taking.
Perhaps you sell your home to upsize or downsize? If you’re an investor, maybe you sell to your tenants or another buyer, to explore other investment opportunities? The most likely of them all though, and arguably the most popular, is to take out a remortgage.
The first step is to look at what a remortgage is. It is the process of using the funds released from a new mortgage, in order to pay off a mortgage you already have. There are a variety of both major and minor options for taking out a remortgage.
To learn more about what a remortgage is, we also have this handy video guide, wherein company director, mortgage advisor and host of our YouTube channel MoneymanTV, Malcolm Davidson, discusses everything you need to know about remortgages.
Your primary deal will more than likely have been set somewhere between 2 to 5 years, featuring lower fixed rates or perhaps even discounted rates. In some cases, you may have found yourself on a tracker mortgage, with your interest following the Bank of England’s base rate.
As your fixed or introductory mortgage deal ends, you will more than likely find yourself on your mortgage lenders standard variable rate (SVR). The way an SVR works, is that it is a mortgage with an ever changing interest rate, depending on what your mortgage lender wishes to charge.
A standard variable rate will not follow the Bank of England’s base rate as a tracker mortgage would, so can be a little risky for some homeowners. Your mortgage lender is under no legal obligation to charge at the recommended rate and so can charge above that.
As such, these types of mortgages are usually quite costly for homeowners and you’d be very hard pressed to find a situation in which a mortgage advisor would recommend staying on it, though there may be niche cases where this happens.
Many will instead remortgage onto a new deal, with a new fixed-rate mortgage, allowing for better and more consistent interest rates on their mortgages, as opposed to what they otherwise might have been faced with, saving money on monthly mortgage repayments.
During the course of your fixed or introductory period, especially towards the tail end, you may feel like you need a change. Perhaps you need an extra room or need more space in your living areas. Many these days are opting to create home office spaces.
The logical next step for some is to simply move home and finding a property that better fits their new requirements. The unfortunate side to this, is you have put a lot of time and money into this home, possibly building a life for yourself there.
The good news is, you may be able to achieve these goals and also stay in that same home! Many will look at a remortgage to release equity within their home, in order to have renovations, modifications or extensions done on their home, fulfilling their new needs.
Though it can seem quite stressful potentially having to obtain planning permission and fund or manage your own project, it could be argued that this is still much less stressful and perhaps even more rewarding than selling your home, buying a new home and moving everything with you.
As time goes on, this might start to benefit you more and more, as the act of creating more space and having good quality craftsmanship in your home, will more than likely increase its value. If you ever did look to sell, this could see you making more money back from the sale.
From time to time, we find some homeowners may instead look at taking out a remortgage for changes to their term. Typically this is either to reduce the length of their term or switch to a more flexible product.
Reducing the length of your term means you will not be paying back your mortgage loan for as long, meaning you’re not “tied down” for life. That being said, this can raise the monthly costs of your mortgage. Generally, the longer your term, the lower your payments will be.
Some will also choose to make their mortgage a little more flexible for their term when remortgage time comes around. This can often work in the favour of many homeowners, leading them to be more inclined to choose this option.
You may be able to overpay on your mortgage because of this, which might see you being able to pay off your mortgage much quicker. Additionally, you may find that you are able to port your mortgage and rates across to another property, if you were to later decide you wish to move.
Though these flexible mortgages can sound quite ideal in what they allow you to do, they will often come in the form of a tracker mortgage, following on with the Bank of England’s base rate. This could mean that your mortgage payments could be unreliable and see them fluctuating each month.
Everyone that owns a home will find that there is some level of equity sitting within their home, with equity being the difference between what is still owed on the mortgage and the value of your property currently.
If you had a £130,000 house and had £70,000 left on your mortgage, you have £60,000 of equity. As was touched upon above, you can use a remortgage to release equity for home improvements, modifications, alterations and extensions.
That being said, it can also be used for other options as well, such as funding long-term care costs, to pay off an interest-only mortgage, to boost your income, to have a family holiday, really for anything at all, within reason of course.
We occasionally come across landlords with a buy to let mortgage using a remortgage to release equity as a means of putting down a deposit on any further property portfolio additions they wish to make.
If you are a homeowner who is also over the age of 55, currently living in a property with a minimum value of £70,000, then it could also be worth looking at your options for equity release, or an alternative.
To learn more about later life lending or to see if you qualify for it, feel free to book a free later life mortgage appointment and have a chat with one of our dedicated later life mortgage advisors today.
To understand the features and risks of equity release and lifetime mortgages, ask for a personalised illustration.
A lifetime mortgage may impact the value of your estate and it could affect your entitlement to current and future means-tested benefits. The loan plus accrued interest will be repayable upon death or moving into long-term care.
Another big reason we see people come to us for remortgage advice, is for a debt consolidation mortgage. They are usually looking to pay off any unsecured debts that they have gathered over a portion of time.
Though it can seem like a fairly straightforward concept, a remortgage for debt consolidation will not only base the amount you can borrow on how much you owe in unsecured debts and the value of your property, but also your credit rating. This can see your borrowing capacity limited.
Furthermore, in order for you to pay off your previous mortgage and also cover your debts, you will likely need to borrow a higher amount than the mortgage amount that you have left. This can leave you with much higher monthly payments than you would have maybe expected.
Whilst it may not be ideal, if you do find yourself needing help with your finances, you at least know that there are some options for you. If your credit rating has dipped, you may still have options, though you will need to take out specialist remortgage advice. Even with that, you may not be able to proceed.
You should think carefully before securing other debts against your home. By adding your unsecured debts to your mortgage, which is secured on your home, you are potentially putting your home at risk if you cannot make the required repayments.
Although the total monthly cost of servicing your debt may have reduced, the total cost of repayment may still have risen as the term of your mortgage is longer than it may have taken to repay the debts originally.
If you are nearing the end of your term and are looking at what steps to take next, such as a remortgage, it is definitely worth your while getting in touch with a trusted and dedicated mortgage broker.
Your mortgage advisor will take a look at your situation and future plans in order to help you decide on the best plan of action to take. We aim to ensure this time your process is much easier and quicker than your first mortgage.