Do you remember when you arranged your current mortgage? A lot may have changed since then:
- your home is likely to have increased in value – according to statistics in June 2020, UK house price growth is up 2.4% on the year, and has increased from 1.6% at the start of 2020;
- if you have any kind of repayment mortgage, your monthly instalments have been taking care of both interest and capital repayments – you owe less now than you did at the beginning;
- the rise in house prices, together with the reducing balance of your current mortgage, mean that the loan to value (LTV) ratio between your outstanding loan and the value of your home is lower now than when you first arranged your mortgage; and
- new mortgage products are likely to have come onto the market – potentially offering improved terms and conditions, along with more competitive rates of interest.
You can remortgage
All of these changes may help to create the conditions you need to remortgage your home.
A remortgage is simply swapping your existing mortgage for a new one – either with the same lender or a new provider – without leaving the home you currently occupy.
Remortgaging remains popular and widespread among borrowers. Statistics published by the Bank of England indicate that more than 52,000 remortgage applications were granted to individual customers just in February 2020 alone.
Two of the most common reasons for remortgaging are to:
- get a more competitive deal than your current mortgage; or
- remortgage to release equity from your home to consolidate other debts and loans you may have acquired in one place, under the same umbrella.
A remortgage takes advantage of the likelihood of your having increased your equity in your home and allows you to borrow more on the strength of that increase.
Remortgage for debt consolidation
By swapping your existing mortgage for a new one, you can include other debts, loans, and line of credit within the new remortgage you pay back.
Consolidating your debts in this way means that they are kept all up together under the same umbrella. That makes them easier to manage, of course, and there is less chance of your forgetting or overlooking any one debt repayment when it falls due – an omission that would be almost certain to damage your credit rating and, so, make borrowing that much more difficult in the future.
A remortgage for debt consolidation is a new mortgage, of course, so any lender – your existing mortgage company or a new one – will need to make renewed checks as to the affordability of the loan, your past experience in managing debt, and your current credit history.
Unlike the time you applied for your first mortgage, however, you have the distinct advantage of being able to demonstrate to the remortgage lender that you have kept up the instalments on your mortgage and made the repayments when they fell due. If you have been that responsible in the way you managed a mortgage, any new lending may recognise you as the type of reliable borrower they want to encourage by offering a competitive rate of interest.
Hopefully, that financial responsibility in the way you have managed other debts and borrowing is also reflected in your current credit rating – although a less than perfect credit score is unlikely to be a barrier to your securing a remortgage (perhaps on slightly less favourable terms).
Securing such a competitive rate of interest on the consolidated debts you incorporate into your remortgage, of course, is likely to make your repayment of those debts, too, cheaper than might otherwise have been.
The rate of interest you are offered might also be influenced by the new loan to value (LTV) of the new borrowing relating to the value of your home. The lender will need an up to date valuation of your home, therefore, and this is a cost that you must be prepared to bear.
Whatever the terms, conditions, and rate of interest you may be offered on your remortgage, it is essential to remember that it is still a mortgage – you have swapped your previous mortgage for an alternative replacement. The remortgage, too, is secured against your home. Just as before, therefore, if you default on the repayment instalments of your remortgage, you risk losing your home.
If you are considering consolidating your debts under a remortgage, seeking the advice of a mortgage broker may be the next step. They can help you assess the most cost-effective way of repaying your debts while matching you to the most suitable lender for your own unique circumstances.