What is remortgaging?
Remortgaging is when you change your mortgage policy either with your existing provider or to a different provider.
The benefits of remortgaging your home
There are several reasons why people will remortgage their homes, these include:
1. Since you bought your original mortgage there have been better mortgage deals that have come on to the market that are offering lower interest rates or lower charges making the new deal less expensive. Remortgaging to a new deal can lower the monthly payments.
2. Consolidation of debt. If you have credit card or loan debt then you can often find that by remortgaging to include all your debt will give you an overall lower interest rate than would be otherwise possible to get through a credit card or loan. Even if they provide your mortgage as well!
3. You may want to release equity in your home to finance investments or home improvements. This is quite common since releasing equity offers better financial terms than if you were to borrow through other channels this is because you are borrow against a secured asset. If home improvements are carried out correctly they can actually increase the total value of your home, providing you with a profit.
The disadvantages of remortgaging
There are a number of areas to consider if you are considering remortgaging.
1. If you change to a different provider, they will need to value the property and complete other legal documents which are sometimes offer for free but most do charge fees for this which can vary greatly, ranging from a few hundred pounds to thousands of pounds.
2. Mortgage lenders may charge exit fees. To keep customers mortgage lenders often charge early repayment fees, final repayment fees or other fees than you will find in your contract policy. It is very important to calculate all associated fees as these can run into thousands of pounds and may result in it being more expensive to switch than to stick with your current provider.
3. Ensure you have a thorough check of a new contract as you may be enticed by the low interest rate that they are charging however when the time comes to change you may be hit by larger charges than you have experienced before.
4. Consider the current economic climate as the property may have dropped in value since you first had it mortgaged, possibly putting you into negative equity. Therefore remortgaging will mean paying the difference between the old and new mortgage.
Remortgages are a huge undertaking; take your time to cover all your bases and avoid any nasty and expensive surprises.
