Remortgage

Remortgaging has different meanings used by mortgage advisors and consumers. These are the three different meanings of the word:

• Release equity by moving to a larger mortgage;
• Switch mortgages to a lower rate to save money; or
• A combination of the two.

This page explains the equity release remortgage. For a guide on switching mortgages to save money without releasing equity go to this page switch mortgages.

You may also remortgage to a lower rate with a larger loan in order to save money and raise money. This is explained below.

Releasing equity – raise capital from your property

Although remortgaging does not necessarily involve releasing the equity in the property lenders do offer equity release remortgages. This is for property owners who have positive equity and would like to increase the value of their mortgage, whilst moving to a lower rate, in order to make use of the cash tied up in their property. A remortgage used to release equity might be used to consolidate debts, make home improvements, buy a new car or go on holiday. Remember if you are considering a debt consolidation remortgage you will be transferring short term unsecured debts in to a long term secured debt. This puts your home or property at risk of being repossessed, although this risk is low since lenders usually require a 5-10% deposit.

If you are looking to release substantial equity from your property as a retirement income an equity release mortgage may be more suitable than a remortgage.

The cost of remortgaging

Although remortgaging could save you thousands of pounds over the course of your mortgage term there are likely to be costs associated ending your current mortgage and starting a new one.

Charges
There may be a valuation fee, legal fees and possibly an application fee. Most importantly, your current mortgage may have a redemption penalty, which means you have to pay a charge for leaving your current lender. This charge may be fixed or could be a percentage of your remaining mortgage.

Life insurance
If you remortgage to a larger mortgage and you pay life insurance to cover your original mortgage in the event of death you may want to cover the additional capital gained from the remortgage. If not your family will have to cover the cost of the increased mortgage in the event of your death. This problem has been named the "insurance gap".

Applying for a remortgage

You can apply for a remortgage in the same way as a normal mortgage, through a lender or broker, although the process will take less time than a mortgage as it is less complicated.

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