Homeowners who are in need of extra cash for any purpose can raise the needed cash by taking out a second mortgage on their property. A remortgage can involve any of two things. One is renegotiating the existing mortgage with the current mortgage provider; homeowners can do this to raise cash or to get better mortgage terms. The other possibility is to move altogether to a different mortgage provider. For most people, their mortgage is their single largest financial commitment therefore making changes is not something to be done at a whim.
But what exactly does remortgaging mean for homeowners and why should they consider it?
The main reason anyone would want to consider remortgaging is to save money or to raise money, and this is incentive enough. A remortgage can have good benefits if you decide to go about it for the right reasons. However, there are some situations where it is advisable to continue with your current mortgage provider and a good mortgage broker can help you decide which situation is good for staying back and which is right for moving. In this guide, we are going to look at 5 reasons why remortgaging will make for good financial decision.
Your fixed term period is coming to an end:
Typically, every mortgage carry a fixed term period or incentive rate period that lasts for between 2 to 5 years. This is when your mortgage provider or bank offers special interest. Whether you are on a fixed rate mortgage plan or a tracker mortgage or a discount mortgage, the situation is usually the same. Once this period expires, your mortgage provider will place you on their standard variable rate (SVR). This rate is usually higher than what you must have been used to and also higher than what you will find elsewhere; therefore you will end up paying more every month. In this situation, a remortgage is definitely in your favor. The good thing about the incentive period is that you usually know when it would end and you can start doing your research at least 3 months before the period ends. This allows your sufficient time to make your plans and consult with your mortgage broker if you have one.
Getting a better deal:
Remortgage helps you reduce the cost of your monthly repayments. Renegotiating with your current mortgage provider or moving to different provider could help you save money. It is usual for mortgage interest to change and switching providers, you might find one with a lower interest rate. But once you find a good offer, it is a good idea to find out for how long it lasts and what your repayments options will be when the period ends. Just the same way we compare and negotiate products to get better offers, this is the same way we can compare mortgage providers and plans to get an offer that saves money. This positive consumer habit is even more beneficial with the high level of competition among businesses and the availability of useful tools on the internet. Ironically, some homeowners stick to the same mortgage company year after year even though they can channel their negotiation skills to getting a better mortgage offer. Getting a better deal and reducing your mortgage interest payments is a very good reason for choosing to remortgage.
To release equity in your property:
if the value of your property has increased during the term of your mortgage, then considering a remortgage is the best way to benefit from this added value through a release of equity. The more equity your property has, the lower your loan to value ratio and the better mortgage deal you can get for yourself. Banks and mortgage providers charge lower rates for lenders with a lower loan to value (LTV). Additionally, you can get an even lower interest rate when you reduce your LTV further by making additional mortgage payments from a separate source of funds.
You want to borrow more:
if for any reason you want to increase your loan amount, maybe to carry out home improvements or to pay off other debts and your current mortgage provider has said no to extra lending or the terms they are offering you is not favorable, then remortgaging to a new provider might be the trick you need. Remortgaging to a new mortgage provider might enable you raise extra money at a cheaper interest rate. Just be ready to show proof of what the money is meant for such as contractor’s quotes or proof of payment of debt. Mortgage providers will never agree to raise you money to buy a new car or for investing in a business. If you have maintained a good repayment system with your current mortgage provider, they might be willing to increase your loan amount, however there are circumstances when your current lender will not want to give you more money or they give offers that are less attractive than what you can get elsewhere. In this situation, remortgaging can be a good option, but you need to calculate the cost and benefit of switching mortgage providers before you do.
Interest rates might go up:
if the Bank of England’s rates are expected to increase, then it might be a good idea to consider a remortgage. Any increase in interest rates will affect the overall cost of your mortgage, depending on the type of mortgage you have. However if the expected increase in interest rates is for new customers only, then you do not need to remortgage, as the increase will affect you as a new customer wherever you move to.
Remortgaging gives a lot of financial benefits in terms of reduced monthly payments and the amount of interest you get to pay on your mortgage. However, while remortgage have long term financial advantages, you may also incur some expenses when moving. Some mortgage providers charge what is called an early repayment fee or an exit fee before you can leave. It is important also to know calculate correctly what you stand to gain if your remortgage, sometime, you might need to engage the services of a mortgage broker who will study your situation and let you know if the time is right for you to remortgage or if you need to remain with your current mortgage provider.