March 13, 2012

Remortgaging

RemortgageThe process of remortgaging involves taking out a new mortgage and settling an old mortgage.

You may have a mortgage with lender A, and for any number of reasons including those discussed below you opt to take out a mortgage with lender B, using this mortgage to settle the original one.

Reasons to remortgage

There are a number of reasons people consider remortgaging their property, the following is a list of some of the more popular ones.

Remortgaging for a better rate

People will often look to remortgage because there is a better rate on offer from another lender. Even small differences in interest rates can add up to large amounts over the lifetime of a mortgage and so it can be well worth looking around to see if there is a better rate on offer.

Don’t be fooled by prices in a shop window though, you need to compare all details of one mortgage against another to be sure you’re getting a better deal.

Remortgaging to raise capital

Many people look to use equity in their homes to raise capital for various purposes. These may include home improvements, holidays, cars or any number of things the person may need to borrow money for.

Using your home equity to raise capital won’t always be an option. If the LTV (loan to value) is too high or other criteria aren’t met such as employment and income levels a lender may not be willing to extend a loan.

Remortgaging for debt consolidation

This is similar to remortgaging to raise capital only this capital is used to pay down other debts. Credit and unsecured debts can have very high interest rates attached and in some circumstances it is more economical to increase mortgaging borrowing at a lower interest rate and pay down these debts.

Again it’s not always an option, you still need to meet lender criteria but it may result in lower overall monthly payments.

Remortgage Costs

As with anything in life remortgaging isn’t free, there are numerous costs involved and if you’re remortgaging to save money you need to be sure that the costs associated with remortgaging aren’t larger than the saving otherwise it’s a pointless exercise.

Exit fees

Your current mortgage type may be subject to exit or early redemption fees. This means you pay a fee for paying off the mortgage early. These fees can be high so it’s worth checking.

Setup or arrangement fees

Lenders will usually charge a fee for arranging you a mortgage. This could be more than £1,000 depending on the lender.

Legal fees

You’ll need legal representation to remortgage your property and there will be a cost for this.

Broker fees

If you use a mortgage broker they may charge you a fee for their service.

Using a mortgage broker

Using a mortgage broker to remortgage your property can often be a good idea.

Mortgage brokers can quickly compare many products and will often be able to advise you on the best one. This can save you time and money compared with trying to work out the best deal yourself.