Remortgage to Buy Another Property
If you have a good credit history, are earning enough, and are confident of repaying your loans, you can easily purchase a second home. There are two ways you can do this—get a remortgage loan on your existing property to purchase a second home or apply for a buy to let mortgage.
Let us first consider the buy to let mortgage, a special mortgage product designed by mortgage lending companies to cater to the requirements of people who already have a mortgage loan on one house, but want to buy another property for a variety of reasons. A buy to let mortgage is not the same as the mortgage you get when you purchase a house for residential purposes. The repayment amount for a buy to let mortgage is calculated after taking into consideration the income expected by the owner as rent from his/her second property. Since the homeowner has to pay off mortgage on his/her first house as well as the buy to let mortgage on his/her second property, mortgage lenders consider the risk to be higher and charge higher rates of interest. Moreover, borrowers might not get more that 80 percent of the value of the second property as buy to let mortgage.
Another great disadvantage of buy to let mortgage is that it is too popular. More and more people are getting attracted to the idea of purchasing second homes to let, as a result of which houses are lying around for ages without being rented out. Study the market well before you plunge into it; you might have to purchase your second home in an ideal location and advertise it really well if you want the idea of getting a buy to let mortgage work for you. You might also consider purchasing a buy to let insurance so that repayments can be successfully made even if you are unable to rent out the property.
Another popular way to raise money to purchase a second home is to get a remortgage loan on your first home. This works only if you have been a homeowner for a long time and have accumulated enough equity on your first home. Equity is the difference between the current market value of your first home and the amount you still owe on it. When you take remortgage on your existing home, you are converting that equity into cash. You can use the cash so raised to purchase a new home or a new car or even go on a luxury vacation. One of the biggest advantages of remortgaging your first home to purchase a second is that your second home is not at risk of being repossessed; only your first home is at risk because it serves as collateral for your remortgage loan. If you are unable to make repayments for any reason, you will lose your first home, not your second home.
Hire a mortgage broker and discuss the various pros and cons of remortgaging before you apply for a remortgage.