How does remortgaging work?

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how does remortgaging work?

Designed to release equity and lower your monthly repayments, remortgaging can be a savvy financial move. If you need to access a significant sum of money, remortgaging to release equity can free up some of your assets for other purposes. Alternatively, remortgaging to another lender could enable you to reduce the interest you’re paying in both the short and long-term. 

What is remortgaging?

When you take out a mortgage, you’re essentially borrowing money from a lender. This borrowing can finance a house purchase or the purchase of a commercial building. You then pay the lender back every month, with interest added on to the amount you owe.

If you already have a mortgage, you may be wondering how does a remortgage work? or what happens when you remortgage. In fact, remortgaging is a relatively easy concept to understand. 

When you remortgage your property, you essentially switch to another lender. You borrow funds from the second lender to pay off your original lender. As a result effectively ending the first mortgage and establishing a new one. 

In some cases, however, you may be able to remortgage while staying with the same lender. If your lender is offering better rates on a different type of mortgage. In this instance, you may be given the opportunity to remortgage your home but stay with your original lender.

With remortgaging explained, you may still be wondering how does remortgaging work and what is the purpose of it. To understand how remortgage works, you’ll need to remember that when you move to another lender, you can also vary the terms of your mortgage. However, this means that you can access better rates. You can also obtain a bigger mortgage or increase the number of years left on your mortgage when you switch to another lender.

How does remortgaging work to release equity?

Many homeowners who remortgage do so because they want to release some of the equity in their property. If you have a mortgage of £100,000 and equity of £250,000. In this instance, you may want to increase your mortgage to £150,000 and reduce your equity to £200,000. This releases £50,000 of your equity, which you can use for other purposes. 

Remortgaging to release equity can be a wise financial decision. The amount of equity you can release via remortgaging will depend on a number of factors. Factors such as the existing equity in your home and the time remaining on your mortgage. However, you can usually release more equity via a remortgage than you could borrow via a personal loan.

Furthermore, mortgage interest rates are typically lower than the interest rates associated with personal loans. By releasing equity and adding to your mortgage, you could, therefore, pay less interest overall.

When should you remortgage to release equity?

Now you know more about remortgage, how it works and what it’s for, you may be left wondering when is the right time to remortgage. Homeowners can choose to remortgage for a variety of reasons. Some of which may be planned and some of which may be unexpected.

If you want to renovate or extend your property, you may want to remortgage to release equity in order to fund these works. Modifying your property can require a significant lump sum. However, if you don’t have this in savings, a remortgage may be a viable option. 

As well as giving you more space and enhancing your living environment, extending or renovating your home could add to its value. If you can increase the property value by undertaking building or construction work, you’ll benefit in the long-term as your home will be worth more. 

While many people plan a remortgage, there are a significant number of homeowners who choose to remortgage their home because of unforeseen circumstances. If your property is damaged and requires significant work, for example, you may need to access the funds to do this. If your insurance policy does not cover the cost, you may choose to remortgage your property to release some of the equity in your home.

Alternatively, you may want to remortgage and release equity for purposes completely unrelated to the property itself. If you want to purchase a second home, fund a wedding, take a dream holiday, remortgaging your property could release the funds you need.

How to remortgage

Now that you’re familiar with what does remortgage mean you’ll need to know how to remortgage your property. When you’re switching your mortgage to a new lender, you will want to ensure that you’re getting the best deal possible. 

Some lenders may allow you to borrow more than others. This will enable you to release a larger amount of equity from the property. Similarly, some lenders will offer better interest rates than others. However, opting for a lower interest rate will mean that you’ll pay back less overall.

There are numerous variables when it comes to mortgage lenders, so it’s important to assess your options carefully. While there are various online resources to help you locate mortgage offers, many homeowners choose to access professional advice when they want to find out more about remortgage, how it works and when to remortgage.

By seeking advice from an independent financial adviser, you may be able to access deals you were unaware of. With in-depth knowledge of the market, a financial adviser can identify remortgage offers which may be appropriate for your needs. They can also offer preliminary advice regarding the amount of equity you will be able to release and what interest rates may be available to you. 

Once you have found the lender you would like to remortgage to, the application process is fairly straightforward. You’ll simply need to provide the relevant information and documentation to your chosen lender. You will then wait for them to approve your application. Many lenders facilitate online applications, so you can submit your remortgage application quickly and easily. Once your application has been accepted, funds will be transferred to your original lender and the remaining equity you’ve released will be made available to you.

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