Once you’ve started making progress on paying back your mortgage, you might start to wonder about the next steps. You could pay back your mortgage in full and then live mortgage-free for the rest of your life. Or you could think about purchasing a second property, either as a holiday home or a buy-to-let property.
Many people dream of owning a second home, and using your current home as leverage to secure the funding is a great way to achieve this. Read on to learn more about how you could remortgage your home to help fund a second mortgage.
When you purchased your first property, you likely had to save a hefty deposit. When it comes to securing your second property, you can consider using the equity in your current home to fund the deposit for the second home. Remortgaging is a popular way to achieve this. These are the things you’ll need to know before moving forward:
The closer you get to the end of your mortgage term, the more of the property you will own. With every repayment, you are increasing your equity in the home, which means if you decide to sell, you would walk away with a larger chunk of the whole value.
As the value of your equity increases, this opens up the possibility of remortgaging and releasing some equity. You could use these funds to improve your property, or as a deposit for a second property.
A mortgage broker can help you to determine if your money could be put to better use by using home equity to purchase a second property.
Remortgaging is not something you should think about doing on a whim. You need to make sure the new mortgage would be affordable, and that adding an additional mortgage to your current outgoings won’t strain your finances. Failing to keep up with payments on this type of remortgage agreement could lead you to lose both properties.
If you switched to self-employment recently, you may find it more difficult to secure a mortgage. Even if you already have a mortgage, lenders will look at your application with fresh eyes. The self-employed often need to meet strict criteria for lending, and this is the same for remortgages, too.
Lenders often find it more difficult to verify income for the self-employed. The self-employed are also more likely to have irregular income, which can make lenders nervous. If you have less than one year of accounts, you should consider working with a specialist mortgage broker to find a lender that is more likely to work with you.
Remortgaging will often come with fees attached, including arrangement fees and early repayment charges. Make sure you aren’t losing out on money by remortgaging. To learn more about remortgaging to finance a second property, explore our knowledge hub.