Remortgaging When Your House Value Has Increased
, by Matt Stevens
Homeowners tend to start considering their next financial step when property values go up. One option in this context is to remortgage due to the fact it offers particular advantages like allowing you to secure a more competitive interest rate, as well as making it so that you’re able to release some of the extra funds that have built up in your home as a result.
In this article, we’ll walk you through everything you need to know about remortgaging when your home has increased in value so that you can tell whether it’s a good idea for you.
How Do I Know If My House Value Has Increased?
Before looking into remortgage options, you should have an understanding of what your home is currently actually worth. You’ll be able to get a rough estimate online, but this figure won’t be as accurate as what you’d get from a qualified chartered surveyor, whose valuation will be based on their reliable knowledge of the local market.
Once you’ve had a professional valuation done, you can then work out your loan-to-value (LTV) ratio. Your LTV ratio compares the amount you still owe on your mortgage to your house’s present market value, and it is an important factor lenders use when determining what deals are available to you.
Why Should I Remortgage When My House Value Has Increased?
When your house’s value increases, you build up more equity, and since the size of your loan remains the same while your home’s value grows, your LTV ratio falls. What a lower LTV does is put you in a stronger position with lenders.
For instance, with this additional equity, you can remortgage on better terms, either by switching to a new deal with your existing lender (a product transfer) or by moving to another one, thereby reducing your monthly repayments. You could also choose to remortgage to release equity, which would give you a lump sum to use for home improvements, debt consolidation, or even the deposit on a second home.
And, if you keep your borrowing at the same level as your current mortgage, your monthly repayments won’t change. Taking out additional funds, however, will mean paying a higher interest rate on the new balance.
What are the Benefits of Remortgaging When Your House Value Has Increased?: An Example
To understand how an increase in house value can work in your favour, let’s suppose you originally bought your home for £200,000 with a mortgage of £160,000. In such a case, your LTV ratio would have been 80%. Over the years, you’ll have naturally made regular repayments and so gradually reduced your mortgage balance.
Now, let us say that you owe £150,000. If you’re lucky enough for your property’s value to have risen to £250,000 since then, your LTV would be around 60%. So, despite your mortgage debt not changing, the increase in your home’s value implies you’ll own a greater share of it outright.
In this scenario, you’d find yourself entitled to the best deals lenders can offer because there is virtually no risk for them, owing to your level of equity. As such, you could switch to a cheaper rate, and would likewise have those other options for financial flexibility we’ve mentioned.
Should You Remortgage If Your House Value Has Increased?
Remortgaging after your property has risen in value represents a smart move. That said, it’s not always the right choice for everyone. Specifically, the timing and terms of your current mortgage ultimately determine whether it’s worthwhile.
Reason being, remortgaging early can trigger an early repayment charge, which would reduce (or could even outweigh) the financial benefits of remortgaging. If you choose to stay with your existing lender, they’ll generally waive this charge, although you should still compare this offer with deals elsewhere to make sure it’s truly competitive.
You’ll also need to factor in the other fees and charges that come with getting a new mortgage, such as those for a valuation, the legal side of things, and arrangement. Regardless, if your current deal is nearing its end, then it’s an ideal time to review your options, given that you’ll be placed onto your lender’s costly standard variable rate otherwise, and won’t be able to make the most of your home’s increased value.
Even when your property has gone up in value, remortgaging isn’t always simple. Each lender has their own eligibility criteria, and not every product will fit your personal circumstances.
At the Mortgage Genie, we have access to the entire market and a team of expert mortgage brokers who can help you compare a wide range of options to find a deal that best suits your needs. If you’re after some guidance, then be sure to contact us at 01915809890 today. And why not see how much you could borrow up to today by using our remortgage calculator?
The above blog has information contained within which was correct at the time of publication but is subject to change.
