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Q:
What is a remortgage?
A:
This is when the terms of the original mortgage are renegotiated,
and usually means that the borrower increases the amount that
they are borrowing, which is often possible due to a rise in the
value of the property. A remortgage may allow the homeowner to
repay other debts such as personal
loans or credit
cards, or it may be a way of paying for home improvements
such as a conservatory a loft conversion.
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Remortgaging may involve getting a better deal from your current
lender, or it may mean changing lenders if a rival is offering
a more competitive rate. The remortgage usually will involve a
fresh survey of the property taking place, and an updated valuation
of the property, which will take into account any changes in value
due to home improvements, or due to fluctuations in the local
or national property market.
Example of a Remortgage
Three years ago, you bought a house for £100,000, with
a £10,000 deposit (10%). You took out an interest-only mortgage
of £90,000 to cover the balance.
Since moving in, you have redecorated the ground floor, converted
the loft, and added double glazing to the House. You live in a
desirable area, and the house has now been he re-valued at £150,000.
Although you have been able to pay cash for many of the home improvements,
you have recently run up £10,000 of credit card debts, and
also have a car finance loan commitment for £10,000.
As your mortgage is interest only, you would still owe £90,000
to your lender. Your equity in the house is £150,000 minus
the £90,000 you owe to your lender, leaving you with £60,000.
If you take out a new mortgage for £120,000; £90,000
of this will be used to repay the previous loan, leaving you with
£30,000. This can pay back your £20,000 debts, and
leave you with £10,000 to spend on more home improvements,
or in any other way you choose. You started by owing 90% of the
value of your property, and you now only owe 80%.
This sounds good. Where's the catch?
Read our mortgages guide for
full information about the pros and cons of remortgaging and how
to find yourself the best deal.
What
is a remortgage?
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