So you’ one of the few, fortunate enough to own your own home outright. Perhaps you inherited your home, or maybe you had a mortgage but managed to pay it off. Can you remortgage?
Well, first we have to be clear about exactly what you mean by ‘remortgage’. There are two common meanings for the term remortgage. The first is when you already have a mortgage on a property but you’d like to switch to a different mortgage deal. This can be with the same lender or another one.
The second meaning, the one which is relevant to this instance, is to apply for a mortgage on a property when there is no longer a mortgage outstanding on that property. Read on to find out if that’s possible.
Can I get a mortgage on my own property?
As long as you are looking to use the money for a purpose that the lender approves of, you should indeed be able to apply for a mortgage.
There are many reasons why you may want to take out a mortgage on a property you own outright. Perhaps you have come into some financial difficulty. Or maybe you’re just looking to renovate a room or the whole house.
As long as you are looking to use the money for a purpose that the lender approves of, you should indeed be able to apply for a mortgage. The value of the mortgage you are likely to be accepted for does depend on the value of the property, however.
How does the remortgage work?
In a nutshell, upon a successful application, the vendor lends you money, which you agree to pay off over a set period of time. The loan is secured on your house, so that if you fail to keep up repayments, the vendor may repossess your house.
If you have had a mortgage on the property before, you can go back to your previous lender. However, it would be wise to do some research first and compare deals. You may well find that another lender has a better deal.
When you remortgage your home, you are essentially releasing some of the value of your home as cash. How much you can release (The loan-to-value or LTV) typically depends on what you intend to use the money for.
Some common reasons for remortgaging and typical LTV rates are shown below. Please note that these can vary somewhat, so it’s always worth checking with some lenders prior to applying to remortgage.
There are many reasons why you may want to remortgage. Any reason why you would typically want to take out a loan applies.
The table below shows some common reasons why you may want to remortgage, along with typical loan-to-value (LTV) limits applied by lenders.
|Buy a car, van or caravan||80%|
|Consolidating other debts||80%|
|Buy a second/holiday home||80%|
|Buy a self-build home||75%|
|Save or invest||Not typically allowed|
Some other reasons you may have for applying for a mortgage on a house you own outright include:
- Buying a property for a family member
- Buying some land
- Going on holiday
- Paying for a wedding or special event
- Helping out a family member
- Paying for university or education fees
How much can I borrow
There are two main factors to consider when remortgaging your home. First, the market value of your property. This will probably be confirmed by a surveyor during the application process.
The second factor is the loan to value (LTV) ratio. This depends on the purpose of your mortgage how much you are looking to borrow. The LTV will also affect the amount of interest on the resulting mortgage.
To find out exactly how much you will be able to borrow, we would recommend speaking to a financial adviser or mortgage broker.
How can I remortgage my property?
When you are preparing to submit a remortgage application, you’ll likely need to compile some documents, namely:
- Proof of your house’s address
- Previous 3 months bank statements
- Your latest p60
- Previous 3 months wage payslips
- Proof of identity
Your next step will be to either find and apply to a mortgage deal, or use a mortgage broker to assist you. It’s entirely your choice which option you choose, it depends on your personal circumstances, the time you have available and your level of understanding of how mortgages work.
Apply for mortgages yourself
If you have some free time and you aren’t put off by a bit of financial jargon, you might want to find a mortgage deal yourself and submit your own application.
You likely won’t be able to comb through quite as many possible deals as a mortgage broker could, but there’s no reason why you couldn’t find just as good a deal yourself.
You might also get tripped up along the way, but if you have the patience and inclination you should be okay.
Apply using a mortgage broker
If you’re short of time and don’t fancy scratching your head looking at financial jargon, a mortgage broker is a safe bet. They may have a fee attached, but they should hold your hand along the way until the funds reach your bank account.
Another option available to homeowners looking to remortgage is equity release. The most common type being a lifetime mortgage.
Typically only available to those over 55, equity release allows you to unlock the value of your property as a lump sum, or as a series of payments. Bear in mind that if you take the series of payments, you’ll pay interest.
You don’t need to have fully paid off your mortgage to be eligible for equity release.
If you are considering equity release, beware: if you make any mistakes it can cost you dearly. There are many horror stories floating around of people who end up owing large sums of money. Do your homework first and take independent advice prior to making any kind of application.
Another possible option to unlock the value of your home is to downsize. Essentially, selling your house and buying something smaller. Obviously, this is not an option for most people, but it is worth considering if you have no other option or your children have grown up and flown the nest.
You could move to a house of a similar size in another area. House prices can vary drastically between areas, particularly if there is an industrialised area or perhaps somewhere with limited commuter transport links.
I have bad credit, can I still remortgage?
There are a number of reasons why you may have a poor credit score. Perhaps you have failed to keep up repayments on a debt, or maybe you have been living with someone with poor credit and it has affected you.
It’s quite likely that your poor credit score will make it more difficult to remortgage your home, but the good news is that you should still be able to get a mortgage. We’d recommend speaking to a mortgage broker in this case, rather than just applying by yourself.
The severity of your credit problems will be a significant factor in the mortgage deal you will be able to apply for, and so will the LTV ratio. You may find that you can still get a competitive rate.
Is it better to remortgage or apply for a loan?
In some cases, you may find that you are better off applying for a secured personal loan. Whether this is the case or not depends entirely on your personal circumstances.
The only way to be sure is to take a look at what is available in the market and compare figures.
A secured loan is often preferable to an unsecured loan as the payment terms are usually longer term, which means the payments are usually more manageable.