Can I refinance my mortgage to purchase an additional home?
Yes, you can. A second home you purchase for investment purposes with a buy-to let basis or for some legitimate reason to buy having a second residence are popular motives for refinancing your mortgage. There’s nothing to stop you from using the equity you amassed in your initial home shouldn’t be used to purchase a second.
What are the most popular purchases for second-purchases?
It is necessary to inform your mortgage adviser the reason for the second house. Not only will this help them to pick the appropriate mortgage for you, but it’ll also be considered by lenders when determining the viability of your loan.
The following are the most commonly observed reasons to buy the purchase of a second home:
Being a landlord
An interest-only buy-to-let mortgage is a common method to begin an investment portfolio in property. A holiday let mortgage allows you to purchase a house that is a short-term rental, and when you are looking to relocate to a different property, however, you want to keep your property and let to let it, the lease to buy option allows you to modify the terms of your mortgage to suit your needs.
The three different types of letting procedures can be funded through an remortgage agreement, whether the full remortgage, or a second charge on the primary residence.
The purchase of a second property
It is possible that you require an apartment within the city in order to reduce the commute, and you might also be interested in looking at supporting your elderly parents, or perhaps an ideal family vacation home that you own. A second residence that you purchase by means of a second mortgage is possible by a remortgage of your main residence.
A commercial property can be purchased for use in business
If you’re planning to purchase a property for your company , then a remortgage to buy another property that has this in mind is likely to be considered by numerous lenders.
One mortgage one, two, or three?
If the remortgage for your first home will be large enough to pay off any outstanding mortgage, and leave enough money to purchase another property in full and you will have two mortgages and the equity released by the first property being your deposit on the second.
The loan-to-value ratios for your second mortgage aren’t likely to be as high as those for your first mortgage, therefore you’ll need to secure a down payment 20 percent or more of the new property from the equity from the first.
Your mortgages could also differ in terms. If the second property you own is a buy-to-letproperty, for instance, the remortgage that you have for your home’s family members will remain a residential repayment mortgage, whereas the second home will be acquired with an interest-only buy to let mortgage.
The choices that will be discussed include:
One remortgage is a possibility if there sufficient equity the primary property to allow you to pay off any outstanding mortgage balance and to purchase a second property in full, you’ll only have one mortgage tied to the first property.
Two remortgages is the most common scenario in which there is sufficient equity in the property to pay off the initial mortgage and free up funds to provide a substantial deposit for a new. The result is an additional mortgage on the first property and a second mortgage for the property you are buying.
Three remortgages: In these cases it is possible to seek the second charge to remortgage (sometimes known as secured loan) on the property that you are the owner of and leave the mortgage on the property. The funds released through this method would be used as a security for the third mortgage to purchase another property.
How can I refinance my home to purchase another?
Mortgages are about numbers. The equity in your home will play a key role in the remortgage process along with your income, credit standing and your affordability. Let’s take a look at them in more detail:
Your current home equity
Equity is calculated by taking the present value of your home and then subtracting the value of all loans that are secured by the property (the present mortgage). If you owned a home with a market worth of £310,000, and the remaining balance of your mortgage is £208,400, your equity is £101,600.
Equity is usually expressed in percentages. In this scenario the equity percentage for you is 32.77 percent.
If you want to remortgage the property you own you have two choices – either take out a complete refinance that will replace your initial mortgage, or you can get a second charge mortgage that is a separate loan that is 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).
Based on the figures in the previous example:
A complete remortgage up to 90 percent LTV could result in a total amount of £279,000. The borrower would need to repay the mortgage in total (£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 amount to purchase a second property.
The second-charge mortgage, with the lender who 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 would be £86,087. The second charge will not be required to repay the original mortgage , and it would be a reduction on any early repayment charges that you’re responsible for.
The fact that you can avoid early repayment fees does not mean that a second charge is the only option the factors that influence the terms of your contract such as interest rate, affordability and terms will all be important when you are looking for your mortgage remortgage. For a free quote or to get advice 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 that you can anticipate.
Your earnings
The amount of your mortgage will depend on your income. The majority of lenders will allow an amount of 4 times your income but some will be able to offer 5x or some will stretch up to 6x.
Income doesn’t only refer to your earnings, but. Mortgage lenders are prepared to consider your total annual income, which could include everything from steady dividends and bonus payments 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 careful documentation of your income. It is crucial to be aware of the source for each portion of your earnings since mortgage lenders look at each source differently. for instance, many lenders will only take into consideration the amount of bonuses you earn annually at 50%.
Affordability
Your budget is determined by analyzing your current earnings and subtracting your expenses. This is crucial in the case of remortgages as well as second mortgages as you’ll be putting the burden of financial responsibility on top of your existing situation.
Mortgage lenders have to be accountable and want to verify affordability prior to they will consider increasing the amount of any mortgage they have or reviewing you for a second. In simple terms, if you don’t prove you can pay for the additional cost then your application will be denied.
Remortgaging may come with costs – there’s the legal and agent fees to think about, but more important is that if you’re repaying the mortgage you have already taken out as part or a refinancing plan, you’re likely to be at risk of being charged for early repayment.
It is crucial to incorporate this cost into the budget Our remortgage experts can assist you.
With years of expertise, we’re able to analyze your expenses in depth and recommend solutions that reduce them and reduce costs in the event that you decide to pursue another round of remortgaging at a later date in the contract.
To begin to get started, why not reach us today to inform us of your goals?
