Do I have the option of remortgaging to buy an additional home?
Yes, you can. A second home you purchase for investment purposes through a buy-to-let model or for an actual reason to purchase an additional home are popular motives for refinancing your mortgage. There’s nothing to stop you from using the equity you’ve accrued in your first property shouldn’t be used purchase a second.
What kinds of purchases are commonly used as second-purchases?
You’ll need to inform your mortgage broker the reasons for the second house. This will not only allow them to pick the appropriate mortgage for you, but it’ll also be considered by lenders in determining the viability of your loan.
The following are the most commonly used reasons for having the purchase of a second home:
The process of becoming a landlord
A buy-to-let with interest only is a common option to start your property portfolio. A holiday let mortgage can allow you to purchase a home that is a short-term rental, and when you’re looking to move to a new home but want to retain your existing property and let to let it, the lease to buy option allows you to modify your mortgage’s terms to suit.
The three different types of letting process can be funded through an remortgage agreement, whether an entire remortgage or second charge to your principal property.
A second home purchase
There is a chance that you will require smaller homes located in the urban area to avoid the daily commute, or you may be looking at supporting your elderly parents, or maybe you are interested in an ideal family vacation home that you own. A second residence that you purchase that has an additional mortgage could be funded by a remortgage of your main residence.
The purchase of a commercial property is for use in business
If you’re planning to invest in property to help your business, then an remortgage that has this in mind is likely to be considered by a variety of lenders.
One mortgage Three, two, or one?
If the remortgage for the first property will be substantial enough to pay off any outstanding mortgage, leaving enough funds to purchase another property in full You will have two mortgages and the equity released from the first property becoming your deposit on the second.
Rates of loan-to-value for your second mortgage aren’t likely to be as high as those for your first mortgage, therefore you’ll want for a deposit minimum 20% to the new property from the equity from the first.
Your mortgages could also differ in terms. If your second home is a buy-to let, for instance, the remortgage that you have on the home of your family will remain a residential repayment mortgage, and the second property is acquired with an interest-only buy to let mortgage.
The options discussed include:
One remortgage is a possibility if there exists enough equity your primary home to allow you to pay off any outstanding mortgage balance and to purchase a second property fully, you will be left with a single mortgage tied to the first property.
Two remortgages are the most common scenario when there is enough equity in the property to pay off the initial mortgage and free up funds to be used as a large deposit for a new. The result is an increased mortgage on the property you purchased as well as a second mortgage on the new property.
Three remortgages: In these cases it is possible to seek the second charge to remortgage (sometimes known as secured loan) on the first property and leave the mortgage in force. The money repaid through this method would be used to fund the deposit for the mortgage that will be used to purchase another property.
How can I refinance my home to purchase another?
Mortgages are about numbers. The equity of your home will be a major factor in the remortgage process and so will your credit score, income and financial capability. Let’s take a look at them in greater detail:
Your current home equity
Equity is calculated by taking the present value of your property , and then subtracting the value of all loans secured by the property (the present mortgage). If you owned a home that had a market value of £310,000 and the amount on your mortgage is £208,400, your equity will be £101,600.
Equity is usually represented in percentages. In this instance your equity percentage is 32.77 percent.
If you are looking to refinance an investment property there are two choices – either obtain a complete refinance that will replace your initial mortgage, or to get a second charge mortgage, which is a different loan secured to the property.
In all instances the total loan-to value (LTV) you are able to leverage against your home is between 80 or 95 percent (depending on the terms of the lender).
Utilizing the figures from the above example:
A complete remortgage up to 90 percent LTV will result in total funds of £279,000. The borrower would need to repay the mortgage in the full amount (£208,400) and leave an amount of money of around £70,600, which can be later utilized (once all fees associated with it are paid) as a large security deposit for a second home.
Second charge loans that has an institution that is willing to extend up to 95 percent LTV in total, could offer you the loan amount of 27.77 percent of your home’s value (your equity ), with remaining 5% of the property for an overall LTV for each mortgage of 95 percent). This amounts to £86,087. The second charge will not be required to repay the mortgage that was originally financed and could reduce any early repayment charges that you’re liable for.
The fact that you can avoid early repayment fees does not mean that a second charge is the only option and the variables that affect the terms of your contract as well as the interest rate and affordability will all be important when you are looking for your mortgage remortgage. To receive a no-obligation estimate or help to discuss your options, why not call us?
The higher the LTV of your loan, the more flexible your options are and the higher the interest rate you could anticipate.
The amount of your mortgage will depend on your income. The majority of lenders will allow an amount of 4x your earnings, however, some lenders will allow you to offer 5x or some stretch it to 6x.
Income doesn’t only refer to your salary, however. Mortgage companies are willing to consider your total annual income, which could include everything from dividends and bonuses that are reliable as well as tax credits maintenance, child benefits.
It is possible to get an enormous increase in the amount of your loan if you provide thorough documentation of your earnings. It is essential to keep track of the source of every element of your income since mortgage lenders look at each source differently. for instance, some lenders will only take into consideration the amount of bonuses you earn annually at 50%.
Your financial capacity is determined by analyzing your income at the moment and subtracting your expenditures. This is particularly important in the case of remortgages as well as second mortgages because you’ll be taking on the burden of financial responsibility on top of your existing situation.
The mortgage lender must be responsible and want to verify affordability prior to they will consider increasing the amount of any existing mortgage , or considering you for a new one. In simple terms, if you don’t prove you can pay for the additional cost the application is likely to be denied.
When you remortgage to buy another property it does come with an expense – there are the fees for the lawyer and the agent to think about, but more importantly , if you’re attempting to repay the mortgage you have already taken out as part of a refinancing plan, you’re likely to be at risk of being charged for early repayment.
It is crucial to incorporate the cost of these expenses into your plans and our remortgage consultants can assist you.
With our decades of experience, we are able to examine your costs in detail and identify solutions that reduce them and help keep costs down should you be considering the possibility of a second mortgage after the term.
To begin we suggest you contact us today to inform us of your goals?