Capital Raising when Remortgaging, what does it mean?
Many people would have heard of the phrase, possibly thinking “I’ll need to take out a second mortgage for that”. In this article I will clear up exactly what this refers to and how it works.
When you remortgage, you simply move your mortgage balance from one lender to another and take on a new ‘product’ in the process. Whether that be a product such as a Fixed Rate mortgage that allows you to tie in an interest rate for a fixed period of time. Or Tracker and Offset mortgages, if you have savings that could be put to better use.
Using a mortgage to consolidate debt or raise capital for home improvements
Dependant on how much equity you have in your home you have the potential to release this money as cash to use for a variety of reasons. ‘Equity’ is the difference between the current mortgage balance owed and the current market value of your home, subject to a lenders maximum loan to value. The most common uses of equity release tend to be consolidating unsecured debt or funding the costs of making much needed home improvements.
Consolidating unsecured debt – what does this mean?
This entirely depends on your personal circumstances. At Fortune Financial, Hitchin, the advice we give is bespoke to you and your personal circumstances. If you have a high amount of unsecured debt, such as; Credit Card debt, Personal Loans or Car Loans, this could be eating up a large proportion of your net income every month. Each month you are likely to be paying high interest rates on the debt repayments. Raising capital/releasing equity to pay off these debts could be very advantageous and significantly reduce your overall monthly outgoings. In turn, providing you with more net disposable income and removing any stress or anxiety that these debts may be having on you or your family.
Do you have a low credit score?
Whilst consolidating your existing debts can significantly reduce your overall monthly outgoings, it is not always right for everyone. Receiving the right advice is important especially as it may be that you have not been able to make consistent payments against your unsecured debt and therefore your credit score may have been impacted?
At Fortune Financial we work with not only high street lenders but specialist lenders. You may find that you are impacted by limitations on which lenders may consider you to be ‘credit worthy’, if you have perhaps had issues with credit in the past. However, our Hitchin based mortgage brokers source via specialist lenders. These lenders will look at your circumstances on an individual basis and will use a lending criteria which caters for certain levels of adverse credit.
Is debt consolidation right for you?
You will need to bear in mind that by consolidating the debts onto a mortgage, you will be spreading the debt over a longer period of time and therefore you may end up paying more interest. You will also be moving unsecured debt and securing this against your home and your home may be repossessed if you do not keep up repayments on your mortgage. Get in touch and we can advise if debt consolidation is right for you!
Mortgage borrowing to fund home improvements
Another common reason for capital raising against your home is to fund home improvements. This could simply be a modernisation of your home, freshening up a room or two. Or a new kitchen, bathroom, or even a home extension. This is something that is more common than many people think, and the reasons mentioned not exhaustive.
If you have the right amount of equity in your home, you could look to release a proportion of this to fund the costs of improving your home. You may be thinking about having another child and need more space, when moving home is too expensive. Or simply, you want to pay for that dream conservatory you have been talking about for years!
I’ve just renewed my mortgage, can I still borrow more?
Many people also assume that because they have just ‘fixed’ their existing mortgage, they can’t borrow more against their home. They assume that they need to wait until their mortgage deal is up. In fact, on the contrary!
There are various options to explore in this instance. For instance, further borrowing can be applied for with your existing lender. Alternatively, a Second Charge can be arranged, whereby another lender funds the capital raising and secures this against your home as a Secondary Charge, whilst your existing lender retains the first charge secured against your home.
Meeting additional borrowing lending criteria
Capital Raising for both Debt Consolidation and Home Improvements can be advantageous. However, both are subject to lending criteria and maximum loan to value (the percentage of the mortgage versus the market value of your home) set by a mortgage lender which drive the interest rate offered. Moreover, as with any mortgage, you will need to meet the affordability assessment to be able to release any of your equity in the first place!
The affordability assessment is the calculation that takes into account your income, sole or joint and also your outgoings and financial commitments. If you want to know how much cash you could release from your home to consolidate debt or make home improvements, contact us and one of our expert mortgage advisers can discuss your options. We will provide you with information on the type of mortgages that are available to you and which mortgage products are best suited to you and your circumstances, from Fixed Rate mortgages that allow you to tie in an interest rate for a fixed period of time to Trackers and Offset mortgages if you have savings that could be put to better use.
Please contact us at Fortune Financial Planning on 01462 510400 if you want to explore the capital raising options available to you.
Cade Somerville
Senior Mortgage Broker, Fortune Financial, Hitchin, Hertfordshire
