Options to change mortgage rate or raise capital.

It may be necessary to change an existing mortgage.  The reasons might include:

– An existing special rate may have ended and there is a need to obtain a new deal.
– Change conditions of the mortgage such as extend term or add or remove a partner from a mortgage. 
– Raise capital.  For Example:

  • Pay off debts.
  • Home renovation.
  • Capital for property investment
  • Help children with deposit or cost of education.

This can be done in 4 ways:

Remortgage

Moving the mortgage to a new lender
for the purpose of obtaining a better rate or raising capital.

Advantages
Best option if existing lender cannot provide a good rate or additional capital. Most new lenders provide free valuations and legal fees for new customers.

Disadvantages.
Slower compared to staying put.
If current rate has a redemption penalty or has a very competitive rate a remortgage may not be the best option.

See Decision Tree below to identify the best option.

Product transfer 

Transferring the mortgage to a new rate
at the end of a special rate such as a fixed rate, but staying with the existing lender.

Advantages.
Product transfer – quickest option to change product as staying with existing lender. If there are no changes to the mortgage there will be no credit search or affordability tests.

Disadvantages.
The current lender may not have the most competitive product on the market.  Any changes to the mortgage will be treated as a new application.
Your circumstances may have changed where a different lender may be more suitable.

See Decision Tree below to identify the best option.

Further Advance 

Raising additional capital on the property
from the existing lender based on equity in the property.

Advantages: 
Further advance – can be the quickest method for additional borrowing as existing lender will have a payment history of the loan.  The existing loan will remain at it’s exisiting rate.

Disadvantages
However, they might not lend further funds or restrict the maximum loan available.  
The new loan will be on a different rate which may be uncompetitive. 

Second charge loan

Raising capital from another lender
while maintaining the existing mortgage.  A second charge loan is used when the existing lender would not advance any further funds. The main mortgage lender is usually called the first charge lender, as in the event of repossession they have first priority of repayment (say from the sale of the property).  So there will be two loans and you will be paying interest to two different lenders. 

Advantages:
Second charge lenders  can use higher income multiples for affordability and also accept greater adverse credit.

Disadvantages
For a Second charge, the 1st charge lender needs to give permission.  There can be many circumstances when current lender decline permission e.g. no longer lending or when client credit status has changed. Second charges loans also tend to have higher fees and higher rates. 

See Decision Tree below to identify the best option.  This is for guidance only.

Remortgage options