1. Am I eligible to remortgage my property?
Your eligibility depends on a number of factors, including your circumstances and the lender’s criteria. Each lender follows their own guidelines, but there are some common criteria, including:
- your credit history
- your incomings and outgoings
- how much you want to borrow
- the amount of equity you have (i.e. how much is left when you take away your mortgage balance from the value of your home)
Lenders calculate if you can afford the mortgage repayments on time, every time - both now and in the future.
You should have a better chance of approval if you’re a responsible borrower with a good credit history. Having a lot of equity in your property should also help.
All of these things show lenders that you’re less of a risk to lend to. The lower the risk, the higher your chances of acceptance with competitive interest rates.
You will usually need to apply for a mortgage in principle (otherwise known as a decision in principle), at the start of the application process. This will show you what lenders are willing to lend you in theory. Some estate agents will ask to see it when you make an offer on a property, as evidence to back it up.
A mortgage in principle may involve a soft or hard check on your credit file, depending on the lender. If they run a full hard check, then it will leave a footprint on your credit report for other lenders to see, and it could cause your score to temporarily drop.
How long into a mortgage do you need to be to remortgage?
You can remortgage at any point, but if you move too soon it could cost you money. Some lenders will apply early repayment charges if you switch before your deal ends. So you need to pick a time when the benefits of remortgaging outweigh the costs.
2. What reasons are valid for a remortgage application?
People remortgage for numerous reasons, including:
1. To move to a lower interest rate
The lower the interest rate, the less expensive your mortgage should be. Remember to factor in other costs (like exit fees), to see if you’ll save money overall.
2. To avoid the lender’s Standard Variable Rate (SVR)
When your current deal ends, you’ll switch to your lender’s Standard Variable Rate. This is usually more expensive than your introductory interest rate, so it may pay off to research different deals.
3. To reduce your monthly repayments
Perhaps you’ve experienced a reduction in income, and you’d benefit from lower monthly mortgage repayments? Shop around for a good deal and see if you can make a saving.
4. To gain more flexibility
Some people look to remortgage because they want the flexibility to make over-payments. Or they want the ability to make payment holidays, for example. Be aware, you may have to pay extra for these features.
5. To change to a different type of mortgage
Are you on a variable mortgage, but would prefer to have fixed monthly repayments? Consider if your current mortgage is still the best option for you. After all, your financial situation may have changed since you took it out.
6. To borrow more money
Some people remortgage to release money so they can consolidate debts or make home improvements.
Keep in mind that if you borrow more, your monthly payments will increase. And the longer the loan term, the lower your monthly payments, but the more you may be charged in interest overall.
3. The benefits of remortgaging
The benefits of remortgaging include:
- Saving money by finding a better deal with lower interest rates
- Clearing your mortgage quicker - with a flexible deal that allows over-payments
- Free up a lump-sum of cash
- Change to a more suitable mortgage deal if your needs have changed
4. What are the alternatives to remortgaging?
There are several alternatives to remortgaging if you need a lump-sum of cash. It’s best to do your research to find a solution to suit your specific needs.
1. Remortgage vs Secured Loan
Secured loans are linked to an asset, usually your house. Like a mortgage, if you fail to meet the repayments, the lender could sell your property to recover the debt. You’ll also need to be a homeowner with some equity in your property. The main difference is: a remortgage replaces your existing mortgage, whereas a secured loan runs alongside it.
With a secured loan, you make two payments each month, one to your current mortgage and another to your loan.
You might prefer to get a secured loan if you currently enjoy low-interest rates on your mortgage. You’d only pay a different interest rate on the separate loan amount. But you need to make sure you can afford extra borrowing before you commit.
The added security gives lenders the confidence to lend larger sums of money, with lower interest rates, compared to personal loans. With Ocean, secured loans start at £10,000 and go up to around £100,000. Monthly payments can be spread over three to 25 years. (Subject to the lender’s criteria).
A secured loan could help you avoid early repayment charges, plus solicitor fees don’t apply. However, it isn’t always the cheapest option. For instance, some secured loans come with arrangement fees. Also, the longer the term of the loan, the more interest you may pay in the long-run.
It could be worth speaking to an Independent Financial Advisor who’ll be able to give you impartial advice based on your personal circumstances. At Ocean, we have trained advisors on hand to take your call.
2. Remortgage vs Personal Loan
A personal loan may be more suitable if you are struggling to remortgage or you only need to borrow a small amount of money over the short-term.
You can avoid early repayment charges on your existing mortgage by taking out a personal loan, instead of remortgaging. And you can get a quick decision, with no solicitor fees or arrangement fees.
A personal loan isn’t secured against any of your assets. This means your property is not at risk if you can’t maintain your repayments (but your credit score would be affected).
Be mindful that lenders normally charge a higher rate of interest on personal loans than on secured loans and remortgages, because there’s a higher risk involved from their point of view.
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