The Mortgage Bank Remortgage Calculator
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Remortgage Calculator Explained
There are few business sectors which have benefited more from the online revolution than the financial industry. Whether looking at mortgages, remortgages, personal loans, equity release or any other type of financial tool, there will be an online calculator to help you.
If you dig deep enough, you will find the formulas, indicative figures but nothing quite beats using your own actual figures. You will see a variety of remortgage calculators online, which will incorporate a fixed-rate period while others will simply look at the amounts you can raise on different LTV ratios.
How Does Our Remortgage Calculator Work?
Our mortgage calculator is very simple and very straightforward. Enter the estimated value of your property from a drop-down menu. You will then be shown an array of different remortgage amounts and LTV ratios. The example below gives you an idea of what to expect.
Property value (from drop-down menu): £500,000
LTV/mortgage funding available:-
It is then simply a case of choosing the level of finance you wish to secure and, using the corresponding LTV ratio figure, finding the best remortgage deal for you. When you see the LTV ratios in a table like this, it does highlight the level of risk with higher LTV ratios against the amount of money you can raise.
For example, a remortgage on a 20% LTV ratio leaves a lot of headroom between the remortgage debt and the value of your property – this would, therefore, be deemed relatively low risk. As a consequence, this would likely attract a relatively low-interest rate. However, if you look at the 80% LTV ratio, this is pushing the boundaries as there is only a 20% buffer between the remortgage debt and the value of your property.
As a consequence, you’d expect to pay a higher interest rate compared to the 20% LTV ratio.
When looking to remortgage your property, whether on better terms or as a means of releasing equity, you do need to weigh up the level of capital you are looking to raise against the LTV ratio and potential interest rate.
Advantages of a Remortgage Calculator
There are numerous advantages to using an online remortgage calculator which we often take for granted.
We all know that the basic premise of a remortgage is based on the risk/reward ratio. So, the bigger the buffer between remortgage debt and the value of your property, the less risky an applicant is considered by lenders. The fact that you can change the value of your property and the proposed LTV ratio allows you to mix and match different scenarios to see where you need to be to raise your target level of capital.
For example, you may have seen a similar property on your street selling for a higher figure than you expected. This may prompt you to look at a remortgage and take advantage of the rise in the theoretical value of your property?
Securing Different Levels of Funding
While many people automatically assume that remortgage calculators are for homeowners looking to reduce payments/raise capital, many might look to expand their property portfolio. For example, if you have significant equity in your property, you may be looking to acquire a buy to let investment and require a deposit.
So, you could use the remortgage calculator to check the level of funding you could secure as a deposit on your next property – focusing on the LTV ratio. If the LTV ratio was relatively low, this could indicate a relatively cheap option although you would need to compare and contrast against alternative sources of finance.
Disadvantages of a Remortgage Calculator
While there are no disadvantages as such when using online remortgage calculators, there are some scenarios where more information would give a more personalised result.
Using the above example, we have listed an array of different LTV ratios and the corresponding levels of finance available. One of the problems with online calculators is that they do not take into account the individual’s credit history. As a consequence, an individual may not have access to some of the higher LTV ratios as a consequence of their financial status.
This is where you would choose the level of funding you are looking to access and then make enquiries about your eligibility.
Different Types of Mortgage
While in theory, an LTV ratio up to 80% may be possible with a traditional remortgage this level of finance may not be possible with an equity mortgage or a lifetime mortgage. However, it does very quickly focus the applicant’s mind on the more appropriate route to take while obviously appreciating their financial status.
It may be that the level of finance required cannot be raised in this way and the applicant may need to look at alternatives such as an equity mortgage, lifetime mortgage or even a home reversion plan.
Reasons to Remortgage
It is worth reminding ourselves why many people choose to remortgage their homes. There is an array of reasons such as:-
Taking Advantage of Lower Rates
This is probably one of the more common reasons why homeowners look to remortgage. At this moment in time, UK base rates stand at 0.1%, which is obviously at or near their historic low. While there is talk of base rates moving into negative territory, nothing is guaranteed.
The general consensus seems to be that UK base rate will remain around this level for some time although things can change relatively quickly. As a consequence, the only mortgage rates we know for sure are the ones before us today.
The long-term benefits from UK homeownership are there for all to see, especially for those who acquired property pre-1990. The 1980s saw a homeownership revolution sweeping through the UK as a consequence of the right to buy scheme introduced by the then Conservative government.
Nobody could quite have predicted the huge impact this would have on the UK property market. As a consequence, many people have significant equity in their property and may be looking to release this.
If you have high levels of debt, equity in your property and with interest rates near their historic lows, this could be described as something of a perfect storm. By remortgaging your property, not only are you potentially saving on monthly repayments/releasing equity, but you can also use any surplus funds to pay down high-interest debts.
More and more people are now looking towards equity release as a means of solving short to medium-term debt problems.
A Holiday of a Lifetime
Many people who acquired property back in the 1980s and 1990s may well have a significant level of equity in their home. It is easy to forget that this equity in your home is non-income producing and is purely and simply based on capital appreciation. The only level of equity you can guarantee with any certainty is the value you see today.
It may rise over the next ten years, it may fall, or it may remain relatively stable, nobody knows. So, in retirement, many people choose to release an element of equity to pay for that holiday of a lifetime and do the things they always dreamt of doing.
Reasons Not to Remortgage
It may surprise many people that we have included a section entitled reasons not to remortgage when it can be difficult to see where this is applicable.
However, there are a number of scenarios where it may not be sensible to remortgage your property from a financial point of view:-
Unable to Match the Attractive Mortgage Interest Rate
If you have a current mortgage on a low-interest rate, then it may not be possible to match that rate. If for example, your current rate is set at 2% and the market rate today is 4%, it just does not make sense to remortgage on a higher interest rate. In this scenario, the alternative would be to take out an equity mortgage as a secondary loan, secured against the equity in your property.
This would need to be taken out at the current higher market interest rate but would at least leave the initial mortgage on the lower rate.
Punitive Repayment Fees
While “unfair” early repayment fees are thankfully fast becoming a thing of the past, there will still be some mortgages where this is written into the agreement. As a consequence, you may find situations where you are looking to remortgage, but because of the punitive early repayment fees, it doesn’t make financial sense.
Again, another option in this scenario would be to maintain the first mortgage and take out a secondary equity mortgage on top.
Benefits of Remortgaging
Remortgage calculators can prove extremely useful when looking further ahead and trying to organise your finances. There are numerous benefits of remortgaging which include:-
Reduced Monthly Repayments
The opportunity to lock into relatively low-interest rates will see many people experience a reduction in their monthly repayments, thereby improving their short-term cash flow. Any surplus funds could be used to cover additional living expenses or even help to pay down high-interest debt.
For those with buy to let portfolios the opportunity to release additional cash flow could help to expand their portfolios, potentially also using equity release funds as a deposit on new properties. This is a type of leverage and must be structured within the constraints of an individual’s financial status. Don’t overstretch yourself!
Enhancing Return on Equity
While it is obviously very useful to have equity in your property, we sometimes forget that the level of equity today is not guaranteed. There is every chance it could increase in the longer term, but it may fall, or it may remain relatively steady. As equity is a pure capital appreciation play, it does not create any short, medium or long-term income until crystallised.
Therefore, if you could release equity in your property on a relatively low-interest rate and then invest/use elsewhere for a greater financial return, this could have a very positive impact on your long term finances.
Switching Mortgage Types
While repayment mortgages are much more common today than their interest-only counterparts, there are still interest-only mortgages available. So, whether looking to switch from an interest-only mortgage to a repayment mortgage, or vice versa, a remortgage of your home could well improve your financial status.
The majority of people will switch from an interest-only mortgage to a repayment mortgage and take advantage of low fixed-rate offers. However, all options are open.
When you apply for a mortgage the interest rate, the term and the type of mortgage are dictated by your personal financial situation at the time. If you had a relatively low income, then this would influence funds available, interest rate and maybe even the term.
So, if your finances improve, you may be able to negotiate a better interest rate, a more appropriate type of mortgage and even adjust the term to what is best for your situation.
You could actually describe remortgaging to cover home improvement costs as a type of cannibalisation. Basically, you are raising funds from your home, which will then be reinvested back into your home. However, there’s more to this than just funding home improvements!
The hope is that the cost of your home improvements leads to a greater increase in value which could, in turn, open up additional remortgage opportunities. Home improvement projects tend to be popular whether the economy is struggling or the economy is buoyant as many homeowners look longer term.
Remortgage Affordability Test
Many people assume that you do not need to take a mortgage affordability test when remortgaging your home. This is simply wrong. If there are regular repayments throughout your mortgage, then you will need to take an affordability test which basically stress tests your finances against various interest rates. When you consider that UK base rates are currently 0.1%, this type of stress test will be very important going forward.
There are numerous issues to take into consideration when looking at a remortgage affordability test such as:-
A Change in Your Finances
If your financial situation has deteriorated over the years, then there is every chance that you may fail a remortgage affordability test. You should be able to crunch the numbers prior to an application, but you need to be honest and upfront about your change in finances.
This is one reason why many people may not be eligible to apply for a remortgage.
Limited LTV Ratio
Nothing rarely stays the same in the financial markets, and therefore when applying for a remortgage, it may be that the LTV ratio you secured, one you may have signed up to many years ago, is no longer available at a competitive rate. Therefore, even if the higher LTV ratio was available, the interest rate may tip the remortgage affordability test towards rejection.
Despite the fact that life expectancy in the UK is improving and our working lives have been extended the cost/availability of remortgages for those over 50 can be limited or at best expensive. As a consequence, many older homeowners may fail a traditional remortgage affordability test.
There are still numerous options open such as lifetime mortgages and home reversion schemes which do not require regular payments and therefore no affordability test.
Taking Professional Financial Advice
Those who have followed the UK remortgage market will be aware of the huge range of lenders now active in the sector. We have traditional banks, private banks and niche lenders as well as the relatively new introduction of crowdfunding platforms. As a consequence, while the Internet is a very useful tool to do your research, it is impossible for the general public to research the whole market to find the best deals for their situation.
It is, therefore, no surprise to see many homeowners seeking the assistance of remortgage brokers.
There are two basic types of remortgage brokers known as independent brokers and tied brokers:-
Independent Remortgage Broker
As the name suggests, an independent remortgage broker has no specific allegiance with any lenders. In reality, they may have strong relations with a relatively select number of lenders, but there is nothing stopping them scouring the whole market for the best deal.
As well as the ability to speak with potentially 300+ different lenders operating in the UK lending market, they can also approach new entrants in the future. On the surface, it is easy to presume they will always be more competitive than their tied broker counterparts, but this is not always the case.
Tied Remortgage Broker
As the name suggests, a tied remortgage broker is an expert in remortgages but rather than having access to the 300+ lenders in the UK lending markets; they work with a select number of lenders. As a tied remortgage broker, you can safely assume they will have strong contacts with remortgage lenders and an ability to negotiate attractive terms.
The general misconception that tied brokers are always less competitive than their independent counterparts is not strictly true. Due to their focus on fewer lenders, they may have stronger relationships and be able to negotiate extremely competitive terms, on a par or even better than their independent counterparts.
Remortgage Broker Commissions
This is an area of the brokerage industry which has caused significant controversy and sometimes confusion in the past. The situation is very different today with strict regulations, greater transparency and improved client protection.
There are three basic sources of remuneration open to remortgage brokers which are:-
- Commission from lenders
- Fees charged to customers
- A mixture of the two
As long as everybody knows where they stand, the issue of remortgage broker commissions should not be a problem going forward.
It is also worth noting that brokers, in general, can often advise on remortgages as well as potential alternatives for you to consider. There is a tendency to focus on the issue of remortgaging while maybe not taking into account the wider situation, assets and finances.
There may be ways and means of using collateral to secure a remortgage, reduce interest rates and fees and generally negotiate more competitive terms.
Alternatives to a Remortgage
There will be cases where a remortgage is not available to a homeowner or the financials, such as the headline interest rate or repayment penalties, make it uneconomical. It is, therefore, useful to learn that there are a number of alternatives to traditional remortgages such as:-
As the term suggests, an equity mortgage is simply a means of extracting equity from your property in the form of a secondary mortgage/secured loan. The equity mortgage would be secured against your equity in the property and involve a secondary charge.
This would rank behind the primary charge held by the original mortgage lender used to acquire your property.
As an equity mortgage would involve regular payments, the homeowner would still need to pass an affordability test. When carrying out the affordability stress test, this would be based on the combined debts of the primary mortgage and the equity mortgage.
If there was sufficient income available to cover both payments, then the equity mortgage would be approved. If not, it would be rejected; it is as simple as that.
Mortgage Interest Rate
As you would expect, the mortgage interest rate on an equity mortgage would reflect the current market situation and the homeowner’s financial status at the time. This could vary significantly from the terms of the primary mortgage.
There is no hard and fast rule regarding the mortgage term for an equity mortgage as long as the homeowner’s finances support the preferred duration. However, some homeowners over 50 years of age may not be eligible.
A lifetime mortgage is an equity release tool which tends to be focused towards those over 50 years of age looking to extract equity from their home.
While relatively straightforward there are a number of factors to consider when looking at a lifetime mortgage:-
No Affordability Test
A lifetime mortgage is structured in such a way that there are no regular repayments and therefore no need for an affordability test. The interest which would normally be paid on a monthly basis is simply rolled up and paid off at the end of the term together with the initial lifetime mortgage capital.
Open-Ended Mortgage Term
While the majority of mortgage arrangements have a defined term, due to the nature of lifetime mortgages, the term is open-ended. In reality, the interest will be rolled up on a monthly basis until the homeowner either passes away or they move into full-time care. At this point the property would be sold, lifetime mortgage paid off, including rolled-up interest, and surplus proceeds returned to the homeowner or their estate.
Lifetime Mortgage Interest Rate
Due to the different structure of a lifetime mortgage, you tend to find that interest rates are regularly quoted at a premium to traditional mortgages. However, as the number of participants and competition in this area continues to grow, we have seen a gradual reduction in the average headline interest rate, which now stands at 4.91%.
Home Reversion Scheme
Over the last few years, we have seen huge changes in the way in which home reversion schemes are managed and administered in the UK. In simple terms, a home reversion company would buy a share of your property in exchange for a cash payment. This is a simple asset sale, and as such, there are no repayments or need for an affordability test.
However, there are some factors to consider:-
Home reversion companies will pay between 20% and 50% of the true market value of any share they acquire in your home. The discount could be seen as part compensation for the long period of time their funds are tied up in the property and the rent-free accommodation afforded to the homeowner.
When a home reversion company acquires a share of your property, there is no redemption date as this is left open. They will eventually receive their share of sale proceeds when the homeowner either passes away or moves into full-time care.
However, this could be tomorrow, ten years down the line or 30 years plus, nobody knows.
Buyback Share in the Property
There is an option for homeowners to buyback in full or in part the share of their property which was acquired by a home reversion company. However, any partial or full buyback would be at the market rate as opposed to the discounted rate at which the home reversion company acquired the share.
In theory, a home reversion company could charge an element of rent relating to their share of your home. However, as we touched on above, the discounted rate at which they acquire their share takes into account lost rental income and the carrying cost of their investment.
It can be very useful to see the basic LTV ratio/maximum funding available when looking at remortgaging your property. It gives you an idea of the risk/reward ratio associated with higher levels of LTV and greater funding requirements. While a remortgage is for many people the preferred option, there are other alternatives such as an equity mortgage, lifetime mortgage and a home reversion plan.
The use of mortgage brokers has increased dramatically in recent years as homeowners seek the best deals on the market.
How Can The Mortgage Bank Help?
Here at The Mortgage Bank, we have partnered with some of the UK’s leading remortgage brokers.
They have already helped thousands of people get the best remortgage deals, and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.