When we remortgage, we take out a new mortgage to pay off an old one.
As time goes by and property values rise, the homeowner's home equity grows. Remortgaging takes advantage of this rise in the value of a property to get a better deal on debt or some extra cash. Remortgaging doesn't involve selling or moving, but the debt can be moved from one lender to another.
There are times when we need money to build something new, like an extra bathroom, a new kitchen, an extra bedroom, etc. We often find that the interest rates on some of the loans we already have are higher than what our mortgage lender charges. When this happens, we can use the extra equity in our home to get money and make it easier to pay back the loan by remortgaging.
Mortgage rates in the UK have dropped sharply in the past few years. So, more and more homeowners with existing mortgages are applying for a remortgage to take advantage of the lower rates.
Due to the increasing use of information technology in the lending process, remortgaging has become easy. People can now apply for a remortgage online from their home or workplace. This has made it much easier and faster to change the mortgage on a house.
Homeowners often see remortgaging as a good way to get money because the interest rates are lower and it is easier to pay back. Changing debts with high interest rates into low-interest remortgages with easy payment terms can be very profitable for the debtors. By changing the kind of debt they have, they can make it much easier to pay it back.
In the UK, there are many lenders who offer competitive remortgage deals. Since remortgages are used to move debts, it's important to make sure that the cost of moving debts doesn't wipe out the money you save.
The biggest cost of a remortgage is the fees for getting out of the loan. When a person wants to get a new mortgage but wants to get out of his current mortgage contract, he has to pay a "redemption fee." There are penalties for getting out of a mortgage early, which make the overall costs of remortgaging go up. When the debt is new, these fees are the highest. When early redemption penalties are high, it's usually not a good idea to remortgage. However, if you have a very good offer that makes up for the loss caused by the early redemption penalty, you should think about it.
There are many other costs that come with remortgaging besides the redemption fee. Some of these are talked about below:
- The new lender who will give you the loan will want to find out how much your property is worth again to make sure it is not too risky for him. So, he might charge some fees for this process.
- The law is involved in every step of the remortgaging process. This could mean paying for a lawyer's advice. The lender may also add the conveyance and other office fees.
When remortgaging, the debtor should think about these fees. There are options where the lender could give back all or part of the valuation, legal, and office fees to the debtors if the repayment plan is unusual. Ask your lender about this possibility.
Remortgaging does give you money with low interest and easy ways to pay it back, but it also has a lot of problems.
The process of paying off debt starts all over again. If you save money in the short term, you might end up owing money in the long term. Even though the interest rates are lower now, they have to be paid over a longer period of time. Again, keep in mind that if you miss a lot of payments, the bank could take the car back.
