Remortgaging occurs when a property owner who has an existing mortgage decides to transfer the debt over to a new lender be it a building society or Bank, without moving home. The Remortgage market has expanded dramatically during the past 5 years as people have become far better educated over the benefits in doing so. In addition there are now over 400 lenders including Banks, Building Societies, private Financiers and Oversees Institutions. This has created an exceptionally competitive Mortgage Market, with Consumers benefiting hugely from the extensive choice of remortgage products offered.

House Prices UP
Rising house prices especially over the past 5 years have left Home Owners with large amounts of equity at their disposal. This in turn has significantly reduced the risk element to lending Organisations whose biggest concern always rests with the level of security a property is able to offer. With this in mind, an increasing number of lenders are now offering self - Certified Mortgages, with Borrowers not having to prove the level of income confirmed on lenders application forms. This has enabled every home owner to re-mortgage, often raising significant levels of equity to use at their disposal. Previously borrowers simply never had this opportunity as their incomes could not possible keep up with the rate of increase in property prices.

Interest Rates Down
Interest rates have fallen dramatically over the past 5 years, meaning the cost of borrowing has reduced, thus giving people more disposable income. Alternatively many borrowers have increased the size of their mortgages by remortgaging, but because of reduced interest rates and the significant increase in consumer choice, their monthly mortgage payments have often not changed, and in many cases have actually reduced.

4 Reasons to Remortgage
Essentially there are four main reasons why people remortgage; I will run through them as follows;

1. Reduce Borrowers Monthly Mortgage Payment
This is where a borrower wishes to re-mortgage for the specific purpose of reducing their monthly mortgage payment, normally by switching to a different product, which offers a better interest rate. Borrowers often qualify for the improved interest rate simply by their personal circumstances and ultimately their credit files improving over the past few years. However, the large increase in their equity is often the biggest determining factor. An example would occur where a Borrower has an existing mortgage of say £200,000 at an interest rate of 7 % resulting in a monthly mortgage payment of £1166.66. The borrower thus decides to remortgage to a new lender and is delighted to find out that he is able to secure the same level of borrowing, but at a much improved interest rate of 5 %. This change in interest rate results in the borrowers new monthly mortgage payment reducing to £833.33. This represents a new monthly saving of £333.33, which is a staggering saving of £12,000 over the next 3 years.

2. Reduce the Mortgage Term
This is where a borrower wishes to re-mortgage in order to reduce the outstanding term i.e. Number of years remaining on their mortgage. This will enable them to get the Mortgage paid off quicker, thereby reducing the amount of interest they will be paying over the term of the mortgage and also clearing the Mortgage off quicker thus reducing the burden of debt. An example would occur where a borrower has an outstanding mortgage of £200,000 on a repayment basis with 23 years remaining at an interest rate of 7 %. Once again, as with the above worked example the client is able to re-mortgage and find a lower interest rate of 5 %. Instead of enjoying a monthly saving of £333.33 the borrower has a different set of priorities. The Borrower decides that he can clearly afford his existing mortgage payment of £1166.66 so he carries on making this monthly payment to his new lender. This has the effect of him making an overpayment each month of £333.33. Which results in his mortgage term being dramatically reduced from 23 years to years? This thought process is often decided upon by more mature borrowers who are planning ahead for their retirements. Clearly if our borrower is 50 years old and plans to retire at 65 years old, he will have a problem paying off his existing mortgage for the last 8 years of its present term. This is on the assumption he will not have a sufficient pension to be able to maintain his current lifestyle he enjoys whilst still working.

3. Release Equity In The Property
This is where a borrower will re-mortgage their property to release equity that has been built up in the property, typically by house prices increasing over the period from when they first took out the mortgage on the property based on its value at that time. This equity can be used for any number of reasons, with the main ones being to purchase a second property, to buy a new car, for home improvements usually meaning a new kitchen and bathroom, or maybe for covering the expense of educating ones children through Private schooling or on through University. A well used example would occur where the Borrower has an existing Mortgage of £200,000 at 7 % which is a monthly mortgage payment of £1166, 66. The value of the borrower's house has increased from £300,000 when purchased to a present day value of £600,000. Unfortunately, however the borrower has a very poor performing pension and little or no savings in place for retirement, which is only 15 years away. It is therefore decided that the client is to re-mortgage from £200,000 to £300,000 thus releasing £100,000 of his equity. The new mortgage has been secured at a better rate of 5 % which means that incredibly the client has borrowed an extra £100,000 at an additional monthly cost of only £83., which is still more than affordable to him. The £100,000 is split into 2 and is enough to cover a large deposit and all the associated purchasing costs on 2 properties costing £250,000 each. The outstanding mortgages of £205,000 for each property are then paid off on repayment mortgages over 15 years. These monthly mortgage payments are covered by the properties tenants who are paying our borrower rent every month. Therefore in 15 years our borrower will own 2 additional properties, which have increased in value to £500,000 each, with no mortgage owing on either. The borrower may then sell one of the properties to clear off his outstanding debt of £300,000 on his main residence, assuming he has remained paying just the interest on his main residence to keep his monthly costs down. The borrower will be able to retire with either 2 properties worth £1,000,000 and £500.000 and have £200,000 in the bank together with receiving a monthly income of £2,000 from rent. The borrower has achieved all this by planning ahead and releasing the £100,000 in his property.

4. To Consolidate Debts
This is where a borrower will seek to re-mortgage their property in order to consolidate other debts they have accrued, such as Credit Cards, Loans, Car Finance, Store Cards or Bank overdraft interest. All of these without exception are charged at a far higher rate of interest in the market place. Indeed whilst credit cards are typically at 10 - 15 % APR Store Cards are normally a staggering 30 % APR. When you compare Interest Rates on mortgages of normally 5 %, one can see the huge savings borrowers can make in consolidating all of their outstanding debts into one affordable monthly mortgage payment. In order to achieve this, once again there is a reliance on the borrower having sufficient equity in his property to cover the accrued debt. An example would occur where a borrower has an outstanding mortgage of £200,000 at an interest rate of 7 % with a monthly payment of £1166.66. In addition the individual has 3 outstanding credit cards totalling £15,000, Car Finance outstanding of £10,000, 2 Store Cards totalling £5,000 and a £2,000 overdraft at the bank. The Individual is paying an alarming £834 per Month. This debt if added to his monthly mortgage payment means he has to find £2,000 each month. The best course of action is for the borrower to re-mortgage adding his outstanding debts of £32,000 to his mortgage thus he has a combined mortgage debt of £232,000. The borrower is able to secure an interest rate of 5 %, which means a new overall monthly payment of £966.66. This saves the borrower a staggering £1,033 every month. This amount is the equivalent net monthly salary of a person earning £17,000 per annum. In effecting this re-mortgage the borrowers whole life changed for the better. Borrowers typically want to do more than one of the above, and with interest rates exceptionally low, it is normally achievable. In conclusion the major factor in all of this is the huge British appetite for home ownership, and therefore the impact house prices have on people's ability to re-mortgage. All of the reasons for remortgaging are dependant on people having enough equity in the property to be re-mortgaged.

Apply online to remortgage or speak to a Mortgage Advisor