Alternatives to Remortgages

Unlocking equity that has built up in a property can be achieved through a number of means including remortgages.

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Remortgages are carried out by home owners who want to release the equity in their home and apply for a new mortgage at the same time. Remortgages can either be carried out with the same mortgage lender that the borrower has their existing mortgage with, or with a different lender altogether.

All remortgages that release equity will result in the balance of the new mortgage being higher than the balance of the old mortgage. The old mortgage is paid off with the funds from the remortgage and the excess is given to the borrower and will represent the amount of equity that has been released.

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While remortgages are extremely popular in the UK, there is an alternative method of equity release that will not require the home owner applying for a new mortgage and redeeming their existing one.
Second mortgages are a popular and effective alternative to remortgages. Second mortgages are also known as secured loans and are loans that are secured against the equity in the borrower’s home.

Instead of applying for a brand new mortgage, the borrower will keep their existing mortgage and secure a second mortgage against the releasable equity in their property. As opposed to remortgages, second mortgages must be issued by a different lender to the lender that issued the existing mortgage.

Both remortgages and second mortgages options have advantages and disadvantages.

Because second mortgages are similar to personal loans in that they are issued for a shorter term than remortgages, they can be the most sensible option when the finance is required for a short period of time.

However, remortgages can involve paying large application and brokerage fees. The longer the time period you stay with the mortgage the more value you will receive out of paying for those fees.

Second mortgages usually incur smaller fees than remortgages. There is no need, therefore, to keep the second mortgage active for a long period of time to gain some pay-back from any fees that may be incurred in securing the loan.

Some second mortgages also offer facilities such as a cheque book and ATM card for draw downs, and a deposit book for making repayments.

Not all second mortgages offer such options so it is advisable to shop around if you require them. Also keep in mind that extra fees may be incurred so ensure that you actually require the extra facilities before signing on the dotted line.

If you require any advice on remortgages, contact an independent mortgage adviser for help.

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