25. Using savings for a remortgage

Using savings to reduce the amount needed for a remortgage is a common strategy employed by homeowners to lower their loan-to-value ratio and potentially secure better mortgage terms. 

How it works 

• Additional equity payment: Savings can be used as an additional payment towards the mortgage balance, which can help in lowering the overall loan amount needed during the remortgage process. This can lead to more favourable interest rates and reduced monthly payments. 
• Required equity contribution: The amount of savings required varies depending on the lender's requirements and the borrower's financial situation. Typically, the more savings a borrower can contribute, the better the terms they may be able to secure. In the UK, contributing additional equity to reach a lower loan-to-value (LTV) ratio can significantly impact mortgage offers. 

Benefits of contributing savings 

• Lower Loan-to-Value (LTV) ratio: Contributing additional savings can reduce the LTV ratio, which often results in more favourable mortgage terms, including lower interest rates and reduced mortgage insurance costs. 
• Lower monthly payments: With a smaller loan amount, monthly mortgage payments are often lower, making homeownership more affordable in the long run. 
• Increased equity: Contributing savings increases equity in the property, providing a financial buffer and potentially enhancing the property's value over time. 

Using savings wisely 

• Maintain an emergency fund: When using savings for a remortgage, it's crucial to maintain an emergency fund to cover unexpected expenses and ensure ongoing financial stability. 
• Assess long-term goals: Consider the impact on your overall financial situation and weigh the benefits of reducing mortgage debt against other investment opportunities. 

Consultation with a financial advisor

Before using savings for a remortgage, it's advisable to consult with a financial advisor or mortgage broker to assess your financial situation, explore available options, and determine the most suitable approach for achieving your financial goals.