Your Home Equity Impacts a Remortgage
The amount of equity you have built in your home or property is important when it comes time to secure a remortgage. It can help determine what loan to value remortgage you can obtain, the level of your rate on the loan, and the amount of cash you could release from a remortgage. The amount of equity you have in your property is definitely important.
It is easy to get a good estimate of the equity you have in your home. Equity is basically the part of your home that you actually own expressed in a monetary value. You have simply to take the value of your home and subtract what debt is owed on the property. The difference is the level of your equity. It is this equity that will be discussed when you go to obtain a remortgage.
Since the value of your home is one of the parts of the equation to determine your equity value, it is important to understand the value of your home. House prices in the area of your home will influence the value of your home. If homes in your area are gaining value then so will yours, if the house prices are declining then most likely your home’s value will decline. There are of course certain things that can add value to a home such as recent renovations or highly sought after features. By upgrading and adding to your home’s value you are building equity in your home.
Many times remortgages are used to do renovations and upgrades in a home. Not only is the renovation an invited benefit to the owner, but the money used to do the job is basically an investment in the property if it adds value. It then is adding equity to the property which is a valuable asset for the homeowner.
When determining a loan to value level of a remortgage, the equity is used to determine the loan value that can be borrowed as well as the rate at which the remortgage will be secured. The higher the equity the better the terms on the remortgage.
Homeowners can end up with what is called “negative equity”. Homes in negative equity cannot be remortgaged. This is a situation in which the value of the home is less than what is owed on the property. To get out of negative equity the value of the home must increase or the amount owed on the property must decrease. Many homeowners concentrate on lowering their mortgage debt to build equity for a remortgage. Sometimes only a slight bit more of built equity can mean the difference between two very substantial remortgage rates. This can be of benefit for many homeowners in the future and therefore getting a remortgage that allows overpayments without penalty can be financially smart since it would allow you to pay down debt quicker and help build equity faster.
By understanding what your equity level is in your home you can better understand how your remortgage will be planned with a lender. A higher level of equity will offer you a better chance of approval, will offer a higher level of cash to be released if that is your purpose for a remortgage, and will bring you a better rate with your remortgage.