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Since interest rates have fallen and many fixed rate deals have expired people stand to save thousands of pounds a year by remortgaging their home to switch to a better interest rate.

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4 Reasons To Borrow Extra When You Remortgage

An average of 27,301 people per month remortgaged their UK home in the second half of 2012. While the number of remortgages is not as high as in the pre-recession days, there’s still a healthy appetite from homeowners wanting switch their mortgage to a new provider.
One of the main reasons that many people remortgage is to take advantage of the equity in their home. A remortgage often allows you to borrow additional cash on top of your existing loan. In our guide, we look at four of the most popular reasons why you may want to borrow more money when you switch your home loan.

Improve your home

Remortgaging allows you to borrow money to help fund home improvements. This can range from a small amount for redecoration or new carpets to a significant sum for an extension. You can also raise cash for a new kitchen or bathroom, to improve your garden or to build a conservatory.

If the improvements are set to increase the value of your home, you may be able to borrow on a ‘when finished’ basis. Here, a surveyor will value your home as it is now and after the works are complete. Your lender may then release the money once the surveyor confirms that the work has been concluded.

Consolidate debts

The record low Bank of England Base rate and strong competition between lenders has resulted in British borrowers benefiting from some of the lowest mortgage rates ever seen. It is commonplace to find a fixed or discounted rate at 4 per cent or less and some deals at low ‘loan to values’ are available at under 2 per cent.

Many credit cards, unsecured loans and store cards charge an interest rate of 15-20 per cent. So, when you remortgage, it can make financial sense to borrow additional money in order to pay off debts at higher interest rates.

Consolidating debts often means that you benefit from paying a lower interest rate on your borrowing. It can also help you to reduce your monthly outgoings. This is because the payment for your additional mortgage borrowing is often lower than your minimum card payment or the monthly direct debit for your loan.

Bear in mind, however, that consolidating unsecured debt into your mortgage can mean you pay more interest in the long run. This is because you may be taking the loan over a longer term – say 15 or 20 years. It also secures a previously unsecured debt. This means that your failure to keep up the repayments may result in you losing your home. This is not generally the case with an unsecured debt.

Make your home greener

The UK government recently launched their ‘Green Deal’. This is a plan aimed at making homes in the UK more environmentally friendly.

You can use the capital you raise as part of your remortgage for a range of green improvements. These can include the installation of solar panels or a wind turbine, a new, efficient boiler or the installation of double glazing or loft and cavity wall insulation.
As well as helping the environment these improvements will often result in a significant reduction in your home energy bills.

Buy another property

Another popular reason why many people borrow additional funds when they remortgage is to buy another property. This can be:

  • A holiday home in the UK or overseas
  • A property for a dependent relative – such as university accommodation for a child
  • A ‘buy to let’ investment

Have you thought of using the equity in your home to fund the deposit for a second property? You can then take out a second (or an investment) mortgage to raise the remaining funds. If you have lots of equity in your home you may even be able to buy a second property outright.

Many people have used their equity in their home to buy a holiday home and use any rental income that is generated towards their mortgage payment. Others have used the money to add an property to their investment portfolio.

Before you commit to your remortgage, always make sure you can afford the payments on your new home loan and any other property you buy.

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