Remortgaging is where you decide to replace your existing mortgage with a different one which can either be with the same lender or a different one.
What are the Main Reasons for Remortgaging?
The two main reasons for re-mortgaging are either to lower your monthly repayments or to release equity which you’ve accrued on your property.
For example you may wish to release some equity to make some home improvements such as converting an existing room into a study for your child or perhaps you need to find additional money to help to put your child through college or university.
If you have younger children who are about to start school, you might also opt to send them to private school which will obviously entail considerable additional costs.
It may be that you are struggling to meet your current monthly repayments or that you think that you might be able to get a better deal from another lender, regardless of how easy or difficult it is to pay your existing mortgage.
Usually, when it comes to re-mortgaging, it’s always worth asking your current lender if they can offer you a better deal firstly. This will give them the indication that you are not happy with the existing terms on your current mortgage and they may well be willing to offer you a better deal than to lose you as a customer altogether.
However, if they decide to make you a better offer, it’s still worth checking out what else is available as you may well find a better deal from another lender.
The Benefits of Remortgaging
Some people choose to re-mortgage in order to release some capital, often referred to as home equity, which they have built up in their property. In other words, you choose to borrow more than your existing mortgage in order to release some or all of the money you have already paid off your home.
It’s often used to fund things like home improvements, for example, to reduce other debts or to consolidate all of your existing debts. It can be a smarter way to borrow money as the interest rate is likely to be lower than if you were to opt for a personal loan.
The other main benefit is that you can often reduce your monthly repayments by switching to another lender or by getting a better deal from your present lender.
This means that you can free up the money saved to put towards other things which might mean things such as a much needed family holiday and managing your finances will become less of a struggle.
How do I go About Finding the Best Deal?
There are hundreds of lenders out there today, which have increased dramatically since online lending became fashionable and the options now available can be mind boggling. However, a good tip is to obtain the services of a mortgage broker who has access to hundreds of lenders and they can get you the best deal available without you having to lift a finger and it won’t cost you a penny!
The reason being is that a mortgage broker is not tied to any one particular lender and therefore they can find you the cheapest deal that suits your own individual circumstances and they make their money from commission from the company with whom you decide to sign up to a remortgage.
You can, of course, use the internet to make comparisons yourself but the specialist brokers often have access to companies that are not available to the general public directly and some of these companies may work out even cheaper.
Are there any disadvantages with remortgaging?
Whilst a remortgage will often mean cheaper monthly repayments, you should be aware that there may be certain costs on top which can include legal fees and penalty charges for switching lender so you should ensure that you factor in these additional costs and you should look at the terms and conditions of your existing mortgage to see what costs will be involved and whether or not you can afford them before you make the switch.
Also, check out how long you’ll be making repayments under the terms of any new mortgage before signing any agreement. This is because whilst you may be able to save money on a monthly basis, you may end up paying more if your new remortgage is over a longer repayment term than your current one.
For many, however, a remortgage can be a smart option. Consider it a bit like a credit card in that you should review your current mortgage every year or so and make the switch if all the figures add up to your advantage.
Your circumstances might change. For example, you may decide to add to your family and, as a newborn baby will make a significant difference to your finances, a regular mortgage review will ensure that you can keep updated with the best and cheapest deal possible, leaving you more money left over to spend on your family.
With a mortgage, many lenders automatically assume that borrowers will be happy to stay put with their existing arrangements because of the vast amount of money involved. Therefore, they think that you’ll automatically settle for the deal they offer you.
However, you should avoid falling into this trap and speaking to an independent mortgage broker should be your first port of call. Money Saving Expert has a free downloadable guide to remortgaging.