Investor Blogs Remortgaging a House to Buy Another: How Does It Work? by Nasser Mansur March 13, 2018February 12, 2019 by Nasser Mansur March 13, 2018February 12, 2019 How does remortgaging a house to buy another work? In real estate investing, there are numerous creative ways and tricks that real estate investors, as well as homeowners and buyers, can use to increase their profits, equity, leverage, or to purchase investment properties that they otherwise wouldn’t be able to afford. One of the most commonly used real estate techniques to achieve these goals is the process of remortgaging a house to buy another. So, what does it mean to remortgage your house? And how can remortgaging a house to buy another be beneficial for you? Remortgaging a house Remortgaging a house is the process of obtaining a second mortgage to release the equity on your existing house and use it for whichever reason that you deem necessary. The process of remortgaging a house is fairly simple – you own a house that you have a mortgage on, but the interest rate on your existing mortgage might not be optimal, and there might exist better options in the market with lower interest rates, for example. You apply for a second mortgage on the house, and you use the borrowed money to pay off the first mortgage, and now you have a new mortgage to pay off with a lower interest rate or with better, more favorable conditions. Additionally, this allows you to release any equity that you have on the property to use for different purposes, such as remortgaging a house to buy another house. Also Read: Is It OK to Break Even on a Real Estate Investment Property? Reasons for remortgaging a house There are a number of different reasons why people or real estate investors might remortgage their house: To get a better deal/less interest rate. To get a more flexible deal with better features and terms such as the ability to overpay, underpay, take payment holidays, or change the terms of the mortgage. To raise extra cash to use for home improvements or pay a debt. To use a mainstream mortgage – a mortgage that has easier requirements or that is cheaper than what you have. However, before remortgaging, you should consider the following: Penalty fees for leaving your current deal. The fees associated with obtaining the new deal. The legal fees for mortgaging. The fees of the mortgage broker. Remortgaging a house to buy another – Is it worth it? So, now that we’ve covered the basics of remortgaging, you should ask yourself this: Is remortgaging a house to buy another worth it? Remortgaging a house to buy another can be a legitimate way for getting into the buy-to-let market, especially if you have a lot of equity on your home (you’ve invested a lot of cash in it). The buy-to-let market is basically the rental properties market. Rental properties typically have different mortgage conditions and standards, which are called buy-to-let mortgages. This type is different from the mortgage that you can get for purchasing a residential property that you intend to live in. While the typical residential property mortgage lender will take into consideration your personal income to determine whether you will be able to pay back or not, a buy-to-let mortgage will take into consideration the amount of rental income that the rental property can generate as it will be the primary source of financing used to pay back the mortgage. So, when considering remortgaging a house to buy another house to use as a rental property, you can use the released equity from the first property to purchase a rental property which will be able to pay off its own mortgage. However, you should keep in mind that buy-to-let mortgages typically have higher interest rates, and defaulting on the new mortgage might lead to you losing both of your properties. Related: All You Need to Know About a Mortgage for Rental Property Remortgaging a house to buy another – Can you do it? Additionally, while remortgaging a house to buy another might seem like a good idea, you should first make sure that you are able to make it. In order to pull off this strategy, you need to have enough equity in your home. So, if you’re relying heavily on leverage and your current property has a high percentage of borrowed money tied to it, then you might not be able to release enough equity from remortgaging to purchase a new property. If you’re remortgaging a house to buy another house to use as a personal residence, then it means that you won’t be receiving any rent to help pay off the new mortgage, resulting in higher mortgage payments. When you apply for a new mortgage, the lender will want to make sure that you will have enough income to pay the mortgage; otherwise, you might lose both your main and second home. Bottom Line Remortgaging a house to buy another can be a good strategy when done correctly and with a solid plan to back it up. When using this strategy, you should always make sure to have sufficient contingency money available to you in case you were unable to make your monthly mortgage payments. Investing in rental properties through remortgaging your house can also be a great way when you don’t have enough cash to purchase a rental property and start making profits from it, but only given that the rental property will have a sufficient cash flow to pay the new mortgage. Related: What Are the Best Locations for Cash Flow Properties in the US Real Estate Market? Before considering this strategy, you should also make sure to seek the advice of professionals and financial advisors to see if it’s a suitable plan for you. You should always keep in mind that defaulting on a second mortgage that you’ve used to purchase a new property can lead to losing both of your properties. Finally, if you’re looking for rental properties with a positive cash flow to purchase using a buy-to-let remortgaging strategy, use Mashvisor to find rental properties that are projected to have good returns and that have a high enough rental income to allow you to carry out your investment with the least amount of risk. Start Your Investment Property Search! START FREE TRIAL Start Your Investment Property Search! START FREE TRIAL FinancingMortgageReal Estate Education 0 FacebookTwitterGoogle +PinterestLinkedin Nasser Mansur Nasser is an experienced content writer with a degree in English Language and Literature. He loves writing about all aspects of the real estate investing business with focus on market and property analysis and the best sources which every real estate investor needs in order to succeed. Previous Post What is REIT and Is It a Good Real Estate Investment Strategy? Next Post How to Make Money in Real Estate: 8 Do’s and Don’ts Related Posts The 4 Hottest Cities for Investing in California in 2018 How to Choose a Real Estate Market to Invest In Cap Rate in Real Estate Investing: Everything You Need to Know Buying Property for Airbnb Is Still a Smart Move! Here’s Why Why Investors Need Airbnb Statistics to Succeed (& Where to Find Them!) 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