Alternative Finance Options – Remortgaging

Many people have experienced a time in their life where they have needed to turn to an additional form of finance, whether this is to make a one time purchase such as a car or simply to help guide you through from paycheck to paycheck. Finding additional methods of finance can be a very time consuming activity, especially when there are so many different options that are available and promoted to us. We see it every day, on the TV, radio and papers about some form of finance being available to us, from credit cards to overdrafts and personal loans. For many of us, learning about how we can borrow money in the most cost effective way is something that we will always struggle to understand.

There are so many different aspects of borrowing that we need to pay attention to so we can fully understand the total costs involved and decide what borrowing method will be best for a certain individual. With many loans, credit cards and overdraft facilities, the period in which you get to repay the borrowed amount can vary from a couple of months up to 5 years. For people that are looking to borrow smaller amounts, these methods may be first choice as with borrowing smaller amounts the interest rates are usually higher and the repayment term is also usually a lot shorter when compared to borrowing a larger amount of money.

Why Remortgaging your house could help with your finances

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Like many other finance options there will always be pro’s and con’s of which borrowing method to take, however when it comes to remortgaging your home in order to access a lump sum of cash this could well be the best option for you.

Remortgaging is a relatively straight forward concept, and is a strategy used by many people in order to gain access to a large lump sum of cash. Many people opt to buy a second property and invest the cash whilst others will use the more common approach of using the cash to fund home improvements which could also increase the value of the property.

Remortgaging in a nut shell

House Value = £200,000

Deposit = £20,000

Time at address = 5 years

Total mortgage repayments (over 5 years) = £50,000

Remaining Mortgage amount = £130,000

Total Equity Available = £70,000

Based on the above example, a £200,000 remortgage will release £70,000 worth of cash given that there is only £130,000 remaining to pay off on the £200,000 mortgage due to an initial £20,000 deposit when first purchasing the house and a total of £50,000 that has been paid in mortgage payments over the 5 years that the house has been occupied for.

This approach is very common among property developers who use this approach to raise enough money for a deposit on another property or simply improve a house to increase the value of the property. Remortgages work exactly the same way as a normal mortgage does, simply put, a remortgage will pay off your existing mortgage of £130,000 and leave you with £70,000 of cash. The mortgage itself will usually be spread out over a 20 – 25 year period just as any other mortgage.

Remortgages can be a great alternative to taking out a large sized loan and it is likely that the interest and repayments will also be cheaper as opposed to taking out a personal loan with a financial provider. Before remortgaging your home, you should always weigh up the risks involved such as failure to keep up with the remortgage payments could result in your home being repossessed.