Cash from Remortgage

dash69

Hi All,
I have a query around Remortgage.I am a first time buyer and bought my home in 2010.
Now I am trying to understand the whole concept of - "Cash from Remortgage".
While at a high level i do understand the benefits of saving money when you remortagage and switch providers but i am not entirely clear as to how one makes money when they increase the size of their mortagage and remortgage.I use an example below to explain my query further (not exactly my case):

Lets say Mr A buys a home (market value = £150000) in 2010 and takes a mortgage of £100000 (makes downpayment of £50000) from provider ABC Ltd at a monthly payment of £400/- for 25 years.
In 2012 :Mr A has managed to return £9600 from his outstanding mortgage (24 * 400 = 9600) to provider ABC Ltd. So outstanding mortgage amount in 2012 is £90400 (100000-9600=90400).
Mr A then remortgages his property (re-evaluates his property and gets valuation of £200000 so an increase of £50K from 2010).Mr A then gets a better deal from another provider XYZ Ltd for say mortgage amount of £19000 (The new providerXYZ Ltd wants Mr A to pay £10000 as downpayment). The monthly payment for the new mortgage is £750. Mr A agrees to this deal from XYZ Ltd.
XYZ Ltd then pays £90400 to ABC Ltd and clears off Mr A's 2010 outstanding mortgage with ABC Ltd.
XYZ Ltd pays £99400 (£190000 - £90400 = £99400) into Mr A's account as the balance outstanding amount. So Mr A gets instant access to £99400/-
Mr A pays £10000 as downpayment to XYZ Ltd as part of the new mortage deal.
Mr A now has to pay £750 per month as against £400 which he paid earlier.

My questions :

1) Is the above scenario correct depiction of the way things would happen in this particular case?
2) Does the balance amount get paid to Mr A's account? If not then how does Mr A make cash by increasing the value of his property and applying for remortgage?
3) If Mr A has to pay more monthly then isnt it simply a case of taking a loan and repaying it? Whats the difference with remortgage?

Thanks for your help and look forward to some help n guidance with regards to this.

Simon_gloster

The £400 a month will include an element of interest, therefore not all the £400 will come off the balance.

You would need to apply to XYZ Ltd for a mortgage amount to clear off your existing mortgage in full, and then decide how much on top that mortgage you want.

The amount of the new mortgage will depend on how long the term is.

You won't have to put any deposit down per se as the equity in home will be sufficient.

If you do want to add £10K just ensure when you do this you don't go over any annual overpayment allowances ABC or XYZ Ltd allow you to do.

If the property has gone up by £50K (was this just a theoretical) spin as you would have had to make a massive additional floor area for a home to go UP £50K in 2 years.

Dave_Ham

I wish you could have just asked the question you wanted to know the answer to.

Mr A and his mates have almost confused the hell out of me, specifically as for a novice Mr A sorted himself out an interest free mortgage as a first time buyer.

Ok - trying to take seriously now.

If your question is you have added value and want to take some cash out, you can.

Be mindful the banks will all know what you paid for the property and therefore if you paid £150k, it is incredibly unlikely they will now value in excess of £200k.

They will also want to know why you want the extra money and this could be verified.

Your income and credit score will also need to stack up.

Good luck

Simon_gloster

dash69 wrote: »

Hi All,
I have a query around Remortgage.I am a first time buyer and bought my home in 2010.
Now I am trying to understand the whole concept of - "Cash from Remortgage".
While at a high level i do understand the benefits of saving money when you remortagage and switch providers but i am not entirely clear as to how one makes money when they increase the size of their mortagage and remortgage.I use an example below to explain my query further (not exactly my case):

Lets say Mr A buys a home (market value = £150000) in 2010 and takes a mortgage of £100000 (makes downpayment of £50000) from provider ABC Ltd at a monthly payment of £400/- for 25 years.
In 2012 :Mr A has managed to return £9600 from his outstanding mortgage (24 * 400 = 9600) to provider ABC Ltd. So outstanding mortgage amount in 2012 is £90400 (100000-9600=90400).
Mr A then remortgages his property (re-evaluates his property and gets valuation of £200000 so an increase of £50K from 2010).Mr A then gets a better deal from another provider XYZ Ltd for say mortgage amount of £19000 (The new providerXYZ Ltd wants Mr A to pay £10000 as downpayment). The monthly payment for the new mortgage is £750. Mr A agrees to this deal from XYZ Ltd.
XYZ Ltd then pays £90400 to ABC Ltd and clears off Mr A's 2010 outstanding mortgage with ABC Ltd.
XYZ Ltd pays £99400 (£190000 - £90400 = £99400) into Mr A's account as the balance outstanding amount. So Mr A gets instant access to £99400/-
Mr A pays £10000 as downpayment to XYZ Ltd as part of the new mortage deal.
Mr A now has to pay £750 per month as against £400 which he paid earlier.

My questions :

1) Is the above scenario correct depiction of the way things would happen in this particular case?
2) Does the balance amount get paid to Mr A's account? If not then how does Mr A make cash by increasing the value of his property and applying for remortgage?
3) If Mr A has to pay more monthly then isnt it simply a case of taking a loan and repaying it? Whats the difference with remortgage?

Thanks for your help and look forward to some help n guidance with regards to this.

Try

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dash69

Ok guys - thanks for the responses. I might have gone a bit overboard by using the example above (Mr A). All the numbers i quote are fictitious (just to get the point).

But what i understand is that ,if as part of Remortgage i legally prove the increased valuation of my property and then ask the new provider to pay off the current outstanding mortgage amount. The balance can be directly paid into my bank amount. I would obviously be liable to pay any taxes on that amount which been credited into my account. Is this correct and a legal transaction?

Also is this how someone who --> buys a run down property at low price --> renovates it --> remortgages after doing evaluation at higher price --> would make cash from remortgages.

Thanks,
Dash

CLAPTON

what do you mean 'make cash from remortgage'

if you mean increase your debt but have some money in the bank then yes.

you can go to the high street today and borrow 10k and say you have 'made cash from the bank'; however you have to pay the 10k back with interest just for the pleasure of having 10k in the bank.