The mortgage journey is one that can be quite rewarding in the long run. Though you will face your fair share of both positives and negatives throughout your process, in the end you will end up with one of the following: either the property of your dreams to call home and maybe start a family, a stepping stone property to help you find your place on the property ladder or an investment property to provide you with an income boost.
No matter which mortgage path you went down, eventually you will find yourself reaching the end of your mortgage term and in need of a different path to venture down. You may find yourself with the option to sell up and upsize/downsize into a new property.
You may possibly even be in the market for selling your portfolio to the tenant(s) or another buyer and look at other fortuitous financial experiences. The most popular option we hear though, over everything else, is a Remortgage.
First of all, let’s look at the definition of what a Remortgage is. A Remortgage is the process of using the funding from a new mortgage to pay off a mortgage that already exists. There are various options you may have when taking out a Remortgage, ranging from small ones to slightly bigger ones.
By utilising the 20 years or so knowledge of Coventrymoneyman’s resident “Moneyman” Malcolm Davidson (host of our YouTube channel MoneymanTV), we thought it would be of great use to everyone, if we put together a handy guide to all the options at your disposal when it comes to starting the Remortgage process.
The mortgage deal you initially start with will normally last somewhere within the realm of 2-5 years, featuring lower fixed rates or possibly discounted rates. In some cases, your lender may even put you on something like a tracker mortgage, a mortgage type which follows the Bank of England’s base rate.
When reach the end part of your mortgage term, you will likely be placed on the lenders Standard Variable Rate (you may see this simply called SVR). The purpose of an SVR, is that this mortgages interest rate can possibly increase or decrease, depending on what the lender determines correct to charge you.
This type of mortgage does not follow the Bank of England’s base rate like a tracker mortgage would do, and as such can be a little more of a risk, as the lender is not legally obligated to charge the amount that might typically be recommended.
Because of this, Standard Variable Rates, generally speaking, are more expensive paths to take, leaving many to look at their options of Remortgaging for better rates. This would hopefully save the homeowner a little bit of money on their monthly repayments.
Once you’ve gotten through the majority of your initial term, you may feel like something isn’t quite right, like something needs to change. It could be that you need some space for an extra room or larger living space for your kids or belongings.
We also see people doing this for a new kitchen, a new office, or even a loft conversion (which seem to be quite popular these days). Instead of just moving into a newer, much larger house, many seek to release the equity in their home with a Remortgage, in order to cover the costs of any potential improvements, alterations or modifications.
Though the idea of obtaining planning permission from a local authority, and both funding and managing your own project seems a scary task, some would argue it’s a lot less stressful and more rewarding than the process that simply house hunting, selling your home and moving out.
As time passes by, this may prove even more to be a smart investment choice, as creating more space and having good quality craftsmanship will likely increase how much your home is worth. This is very useful for if you ever do decide to sell up or rent your home out to someone else.
In some cases, some homeowners may wish to Remortgage in Coventry in order to find themselves a better mortgage term, whether that be by reducing the length of the term in question or by switching to a product that is more flexible.
Doing this will mean you will be paying back your mortgage over a shorter amount of time, so you won’t be tied down for a large portion of your life. However, this route will also mean that your monthly repayments will be higher than they otherwise would’ve been. The general rule of thumb is that the longer your term, the lower the payments will be over time.
A lot of homeowners choose for their mortgage term to be a little more flexible when they take out a remortgage. It’s the benefits provided by this option that tend to sway homeowners more in its favour. Through this, you may gain the ability to overpay your mortgage.
This means you have the ability to pay your mortgage off quicker, as well as being able to carry the same mortgage and rates over to another property of your choosing, just in case you ever decide to find a new property at any point in the future.
Though a flexible mortgage sounds like it would be ideal for you, they will usually come in the form of a tracker mortgage. As discussed earlier on, these mortgage types follow the Bank of England base rate. This means your payments could fluctuate based on interest, potentially making them a little unreliable when your monthly payments come around.
Every homeowner has some amount of equity in their home. How much exactly, depends on factors. It can be worked out by calculating the difference between what is still owed on the mortgage and the current amount your property is valued at.
As mentioned slightly earlier in this article, equity can be used for home improvements, though that’s not all you’re limited to when it comes to using your equity. Some use their released equity to cover long-term care costs, to supplement their income, to have a holiday, to pay off an interest-only mortgage or to simply have extra money to spend freely and treat themselves.
In the occasional case, we find that Buy-to-Let landlords will use Equity Release as a means of covering their deposit for additional property portfolio purchases.
Another big one that works in conjunction with Equity Release, is releasing funds to pay off any unsecured debts that may have built up over time.
Though it may seem like a fairly straightforward task, Debt Consolidation not only bases the amount on how much you’re owed and the value of the property, but it also factors in where your credit rating is currently at.
This could mean that whilst you may be able to use some money to cover these costs, you’re limited from the offset in terms of how much they’ll even let you borrow.
In addition to this, to pay off your previous mortgage and your debts, you will need to borrow more than the mortgage amount that is remaining on your balance. This will almost certainly mean that your monthly repayments will be higher than they were previously. Though not an ideal situation to find yourself in, you can at least rest assured that should you find yourself in need of a back-up plan, you do have some mortgage options to choose from.
If you happen to have a damaged credit rating, you may also still have a chance to obtain a mortgage, though this process will not be easy and requires very Specialist Remortgage Advice in Coventry before you can even proceed. Even with a professional by your side, there is still no guarantee that this will even be something you can do.
We recommend that you always seek mortgage advice before choosing to consolidate and secure any debts against your home.
If you are reaching the end of your term and are looking at your home owning and remortgage options may be, please do Get in Touch with an experienced and trusted mortgage broker in Coventry today and we’ll see how we could help.
An dedicated mortgage advisor in Coventry will be able to discuss your circumstances and future plans, in order to create the best path to take on the next leg of your mortgage journey. It is our aim as a mortgage broker to ensure this time around is a quicker and easier process than when you took out your mortgage the first time.