Remortgaging: using equity in your home to fund life changes
Divorce, home improvements, debt consolidation; for many people time spent in lockdown during the Covid Pandemic has brought a desire for change. Whether you are reorganizing your finances to clear debt, remodeling your home to spark joy or accepting that a relationship is over, if you own your own home remortgaging is one of the ways you could facilitate the changes you want to make happen.
With mortgage interest rates at record lows, for those who own property and have equity in their homes, funding these decisions has never been more aﬀordable.
Why is it so cheap to remortgage at the moment?
After the Coronavirus pandemic began in the UK in March 2020, The Bank of England cut its interest to 0.1% to support the economy. Interest rates have been kept at this historic low in order to protect the struggling economy and it is one of few silver linings to come out of a diﬃcult year.
Because interest rates are so low, for many people there has never been a better time to secure a new mortgage. Interest rates lenders are currently oﬀering ranges typically between 1% and 3%, depending on your circumstances. When you remortgage, you transfer your entire mortgage loan, as well as any additional funds you release, potentially onto a much lower and therefore cheaper interest rate.
What do I need to be aware of?
Covid-19 continues to bring economic uncertainty, and mortgage lenders are reacting by focusing on securing business from the lowest risk applicants. This means attracting existing borrowers who have a proven track record of making regular mortgage payments and who hold equity in their property, typically those who own at least 40% of their home.
For a home owner looking to remortgage who owns at least 40% of the value of their home (60% loan-to-value mortgage), the website moneyfacts.co.uk states the best two-year fixed rate mortgage is currently just 1.14%.
When weighing up percentage points and whether or not it is worth refinancing, it is easy to miss the significance a small drop can make to mortgage repayments, which it is why it is important you look at the interest rate you are currently paying. If you have a £300,000 repayment mortgage over 25 years, with an interest rate of 3%, your monthly repayments would be £1,422.63 per month, and over the lifetime of the loan you would pay a total of £126,790 in interest. Compare that to an interest rate reduced to 2%: repayments would drop to £1,271.56, with a total of £81,468.90 in interest payments: a significant saving of £45,321.10 over the loan term. Keeping a watchful eye on the interest rate you pay on your mortgage can mean a significant cost diﬀerence both in the short and long terms.
All money borrowed has to be repaid with interest, and the cost of borrowing can be significant when it is spread out over many years. Therefore the reasons you are borrowing more money and how it can improve or help your future are crucial considerations. For instance, a home improvement can be seen as a good investment, as the money spent can typically see the value of your home increase. However, refinancing in order to pay for luxury items or a one-oﬀ special occasion may not be in your best financial interests.
How do I get a quote?
Borrowers looking to get quotes for a new mortgage and to release money currently held in their home are likely to find things easier if they seek advice from an independent financial adviser, and at Furnley House we are here to help. Our team of qualified advisers will use their knowledge to provide you with comparison mortgage repayment quotes, as well as highlight any lender, legal or conveyancing fees. They will help you find the best deal for your circumstances.
To speak to one of our Furnley House advisers to talk about mortgages, call 0116 269 6311 to get a no obligation quote or email firstname.lastname@example.org.
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Your home may be repossessed if you do not keep up repayments on your mortgage.
Mortgage refinancing may not be available or suitable for everyone. If you are experiencing debt worries, please contact Citizens Advice or a debt charity such as StepChange