Remortgaging - take out equity now (for BTL) or later?

[mildred t]

Hi all,

 

My husband and I are looking to remortgage at the end of June when our two-year fixed term runs out. We also want to take equity out of the house (roughly £40k) to buy our first buy to let property.

 

Is it better (i.e cheaper and easier) to take out the equity at the same time of remortgaging or to do it later? Does the timing make a difference in how much we'll have to pay back?

 

Your thoughts appreciated.

 

Thanks

[Stuart Phillips]

Its definitely going to be easier, and most likely cheapest to do it all at once. If you do it later some lenders offer further advances at their prevailing rates (or the same as you have on the current main deal), others have higher rates. Whilst you may have some modest fees to pay on a further advance, the process is significant as the lender needs to credit check, assess affordability again and maybe even value the property.

 

In regards paying back the loan, if you were to take a separate second charge (like a secured loan, as opposed to an extra mortgage from the current provider) you can have this over a shorter term. In the longer term this might be more cost effective because you can settle the advance after 5 years for instance, where the main mortgage balance might be 25 years. The compound interest over the difference of 20 years could be a great deal of money. The flip side is that the repayments would be much larger. You could mitigate the cost of the advance by overpaying the mortgage until you were back to where you were.

 

We would be able to work out all the figures fairly easily, and i'm fairly sure that if you are keen to remortgage the existing mortgage, taking the extra as part of the remortgage is likely to be the preferable option.

[mildred t]

This is very helpful, thank you Stuart. We've decided to not do both at the same time though as we're not fully ready to get out buy to let (research into the area needed etc).