Remortgaging is a term used to describe the process of switching from one mortgage lender to another or renegotiating the terms of an existing mortgage with the same lender. This process can be done for a variety of reasons, including to secure a better interest rate, to change the length of the mortgage term, or to release equity. One of the most common reasons people choose to remortgage is when the value of their home has increased. In this article, we will discuss why people choose to remortgage when the value of their home has increased and what steps they should take to make the most of this opportunity.
Why Remortgage When House Value has Increased?
There are several reasons why homeowners choose to remortgage when the value of their home has increased:
- Lower Interest Rates
One of the main reasons people remortgage when their house value has increased is to take advantage of lower interest rates. If interest rates have decreased since you originally took out your mortgage, you could potentially save thousands of pounds over the life of your mortgage by switching to a new lender with a better rate. This can be especially beneficial if you are on a variable rate mortgage, where your monthly repayments can fluctuate depending on the Bank of England’s base rate.
- Release Equity
Another reason people remortgage when their house value has increased is to release equity. Equity is the difference between the value of your home and the outstanding balance on your mortgage. If the value of your home has increased significantly, you may be able to remortgage and release some of this equity, which can be used for a variety of purposes, such as home improvements or debt consolidation.
- Shorten Mortgage Term
Remortgaging can also be an opportunity to shorten the term of your mortgage. By switching to a new lender with a better interest rate, you may be able to pay off your mortgage faster, potentially saving thousands of pounds in interest payments. This can be especially beneficial if you are nearing retirement age and want to have your mortgage paid off before you stop working.
- Home Improvements
If you have been considering making home improvements, remortgaging can be a way to access the funds you need to make these changes. By remortgaging and releasing equity, you can pay for home improvements without having to take out a separate loan, which can be more expensive in terms of interest rates.
Steps to Remortgage When House Value has Increased
If you are considering remortgaging when your house value has increased, there are several steps you should take to ensure you get the best deal possible:
- Check Your Credit Score
Before applying for a new mortgage, you should check your credit score to ensure it is in good standing. Your credit score is a measure of your creditworthiness, and lenders will use it to determine whether or not to approve your mortgage application. If your credit score is low, you may be offered a higher interest rate or be denied a mortgage altogether. You can check your credit score for free with a number of online services, such as Experian or Equifax.
- Compare Mortgage Rates
Once you have checked your credit score, you should compare mortgage rates from different lenders to find the best deal. You can do this by using a comparison site or by working with a mortgage broker. A mortgage broker can help you navigate the market and find the best deal for your individual circumstances. Be sure to consider not just the interest rate, but also any fees or charges associated with the mortgage.
- Consider Fixed vs. Variable Rates
When choosing a new mortgage, you will need to decide whether to opt for a fixed or variable rate. A fixed rate mortgage offers a set interest rate for a set period of time, typically between two and five year., while a variable rate mortgage can fluctuate depending on changes in the Bank of England’s base rate. While a fixed rate mortgage can provide stability and protection against interest rate hikes, a variable rate mortgage can offer more flexibility and potentially lower rates.
- Calculate the Costs
Before you commit to a new mortgage, it’s important to calculate the costs associated with remortgaging. These can include early repayment fees on your existing mortgage, valuation fees on your new property, legal fees, and arrangement fees. Be sure to factor these costs into your calculations when comparing mortgages.
- Speak to Your Current Lender
If you are considering remortgaging with a new lender, it’s also worth speaking to your current lender to see if they can offer you a better deal. Your current lender may be willing to match or beat the rates offered by other lenders in order to keep your business.
- Prepare Your Documents
When applying for a new mortgage, you will need to provide a number of documents to your lender. These can include proof of income, bank statements, and details of your current mortgage. Be sure to have these documents prepared in advance to avoid delays in the application process.
- Apply for the Mortgage
Once you have chosen a new mortgage and prepared your documents, you can apply for the mortgage. This can typically be done online or over the phone, although you may also need to attend a meeting with the lender in person. The application process can take several weeks, so be prepared for a wait.
- Complete the Remortgage
Once your new mortgage has been approved, you will need to complete the remortgage process. This will involve paying off your existing mortgage and transferring ownership of the property to your new lender. Your solicitor or conveyancer will handle this process on your behalf, and you may need to attend a meeting to sign documents.
Conclusion
Remortgaging when your house value has increased can be a great way to take advantage of lower interest rates, release equity, or make home improvements. By following the steps outlined above, you can ensure you get the best deal possible and make the most of this opportunity. However, it’s important to carefully consider the costs associated with remortgaging and to make sure it’s the right decision for your individual circumstances. As always, it’s best to seek advice from a qualified professional before making any major financial decisions.
