There can be many reasons for remortgaging your home. From reducing your monthly mortgage payments, to releasing some of the equity you have built up. Doing so can easily change your financial circumstances. But not only that, remortgaging can actually increase the value of your property.
NatWest’s Remortgaging Stories survey found that 55% of homeowners added value of up to 20% to their homes by remortgaging. Interested? We break down how they managed this – and look at other reasons why you might want to remortgage your home.
What is remortgaging?
Let’s start at the beginning – a very good place to start.
Remortgaging is the process of changing your mortgage deal. Typically, it involves moving to a new lender in order to avoid ending up on your current lender’s standard variable rate (SVR).
The time to remortgage usually comes when your current deal is nearing its end. So, if you initially took out a three-year fixed rate mortgage, near the end of the third year you would most likely start to look at other mortgage deals that you can switch to. The benefit of remortgaging is that often you can reduce your monthly payments by paying less interest.
However, it doesn’t always have to happen at the end of the deal. If you want to access some of the equity you have built up, or just need to reduce your monthly repayments, then you can remortgage at any time. There may be fees you would have to pay, for example an early repayment charge. But depending on the situation, financially, it may still mean that you are better off.
NatWest’s survey of 562 UK respondents who had remortgaged in the past two years highlighted three main reasons for remortgaging:
- Reducing monthly mortgage payments.
- Funding home improvements.
- Helping to relieve some anxiety around household finances.
The Covid-19 pandemic has meant that many people are postponing the sale of their property while the future looks uncertain. According to NatWest, 47% of homeowners are waiting until they can make a clearer financial decision.
Instead, many are turning to remortgaging as a way to relieve financial anxieties caused by the pandemic. Others are considering remortgaging in order to fund home improvements – now that we all seem to be spending more time at home than ever before.
How can it increase the value of my home?
Taking money from your property to fund home improvements could actually increase its value in the long term.
For example, say your house has increased in value from £300,000 to £350,000. You might owe £200,000 on your mortgage, but you could capitalise on this increase by taking out a new mortgage worth £230,000 and giving yourself an extra £30,000 in cash.
You could then potentially take that extra £30,000 in cash and make home improvements that would increase the overall value of your property.
In NatWest’s survey, 19% of respondents chose remortgaging to fund home improvements to bathrooms, bedrooms and the garden. Some forward thinking homeowners used the extra windfall to make their homes more sustainable or energy efficient – a growing area of interest for potential buyers.
But the figure that stands out is that over half of homeowners who remortgaged added value of up to 20% to their home, with 8% claiming their homes are now worth over 20% more.
What else do I need to know?
The main thing to be aware of when considering remortgaging is what loan to value (LTV) band you land on. You may find that when looking for a new mortgage deal, a combination of an increase in value and paying off your mortgage, you have moved to a lower LTV. This can make a big difference as the lower the LTV, the lower the interest rates on offer and the lower your monthly repayments.
However, if you are remortgaging to release some cash, you may end up borrowing more against your property and find yourself on a higher LTV band. If this is the case, just make sure you can afford the monthly repayments. To learn more about all things mortgages, check out our complete guide to mortgages.
Finally, talk to your current lender and potential lender about what fees may be involved. You may find you have an early repayment charge on your current deal, or an arrangement fee on your new deal. It’s best to find this out at the very start, so that you know how much to budget for the whole process.
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