Property Clinic: How do you go about remortgaging your home?

Equity release and switching provider are options to explore when remortgaging

Equity release or top-up mortgage is available to existing mortgage holders for a variety of reasons. Photograph: Getty Images

Equity release or top-up mortgage is available to existing mortgage holders for a variety of reasons. Photograph: Getty Images

 

How do we go about remortgaging our home, and what should we look out for?

Louise Lynam writes: People tend to remortgage their property for a number of reasons, including borrowing more, consolidating debt or potentially getting a cheaper mortgage rate. While you haven’t said what is driving your decision, I’ll cover off two popular options that people tend to explore when remortgaging – equity release and switching.

Equity release can provide an affordable borrowing option for people who have equity built up in their home. It can help customers meet larger expenses with repayments spread over a longer term at a lower rate.

Equity release or top-up mortgage is available to existing mortgage holders for a variety of reasons. Under the Central Bank rules there is a loan-to-value limit on total borrowing of 80 per cent of the value of the property, and for most people the mortgage amount is capped at 3.5 times gross annual income. Some exceptions are allowed so talk to your lender about your plans. An up-to-date property valuation is required and lending criteria and terms and conditions will apply.

Equity release borrowing secured against a principal dwelling home can be considered for many things including:

• home improvements;

• education purposes;

• medical expenses;

• gift to a dependant relative towards purchase of a family home.

Banks will look for evidence of home improvements through invoices for the works to be done. If planning permission is required, you may need to provide a copy of this also. For education and medical expenses your bank may need invoices or other evidence.

A few tips:

• Some banks offer in-house legal fees if the deeds are lodged with the bank and this cost is lower than the legal cost charged by solicitors;

• Applying for an equity release mortgage is the same as applying for a standard mortgage. The bank will look at income, outgoings, savings and present valuation of the property and future valuation of the property if home improvements are being carried out.

Switching mortgage

Switching involves moving your mortgage from your current mortgage provider to a new mortgage provider perhaps to avail of lower rates or possibly release equity for things like home improvements.

It’s important to remember that all mortgage applications, including switching, are treated in the same way, and are assessed based on affordability. Generally banks require switchers to have had their existing mortgage with their current bank for at least one year.

If you have a tracker mortgage we would not advise you to switch your mortgage as you will lose this tracker rate. Some financial institutions will allow tracker customers to move home and can carry their rate with an additional rate added to their current tracker rate for the remaining term left on their existing tracker account.

If your existing mortgage is on a fixed rate, I would recommend that you check if you are actually saving money by switching to the new bank at a lower rate as you may have to pay compensation (fixed rate breakage cost) to your current mortgage provider.

A few tips:

• If you use your previous solicitor who did the original mortgage your legal fees might not cost you as much;

• Request your title deeds from your current provider through your solicitor as soon as you have decided to switch to speed up the process;

• Ask your solicitor to request the mortgage deeds from your current mortgage provider. You will need to sign a letter giving the solicitor authority to do so, and will need to provide details of your current mortgage provider and account number;

• If you are looking to switch for a lower rate you should remain on the same term or lower term of your current mortgage;

• Applying for an equity release mortgage is the same as applying for a standard mortgage. The lender will look at income, outgoings, savings and present valuation of the property and future valuation of the property if releasing equity for home improvements.

I hope this helps to answer your question.

Louise Lynam is a qualified financial adviser and mobile mortgage manager with Bank of Ireland

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