Everyone knows what a mortgage is. It's the industry term for a loan that helps someone buy a home. If a mortgage is a loan based on the value of your home and the promise to pay a monthly rate in the future, a remortgage is getting a mortgage on your home or property after you already have one.
Different kinds of remortgages
There are many different ways to set up and structure a remortgage. Standard Variable Rate is the most common (SVR). A remortgage with a Standard Variable Rate is one in which the interest rate changes based on the market rate. Even though this rate is variable, the first few months are usually fixed at a lower rate than the market to get you to take out the loan.
Fixed Rate Mortgages are the other main type of remortgage. Fixed-rate mortgages are different from variable-rate mortgages because the interest rate is set and stays the same from the start. This type of loan is more reliable because you know exactly what your payments will be from the beginning to the end. However, it is riskier because you may pay too much if rates go down (or too little if they rise). Fixed-rate remortgages are riskier for banks, so they usually charge a slightly higher rate.
There are also many different ways to remortgage through an intermediary. Remortgages come in different forms, like capped rate, tracker, and droplock loans, which combine some features of variable rate and fixed rate mortgages.
Why you should remortgage
In many ways, a remortgage is the same as a mortgage. You have to show a lender your financial situation, what you need, and the property that will be used as collateral. Borrowers must make a strong case for why the lender should take a chance on their loan. But unlike mortgages, where the loan is almost always used to buy a home, remortgaging can be done for a lot of different reasons.
Spending less
People usually remortgage so they can take advantage of lower interest rates. Many people with mortgages can get lower interest rates because the average interest rate in the lending industry has gone down, their personal credit and financial situation has improved (so lenders now have more faith in them), or the equity they have put into their home has decreased the total exposure of the loan and made it less risky for investors.
How to Get Money
The second most important reason people remortgage their homes is to get a lot of cash quickly. Most people do this by refinancing their home to get cash out. This means that you have to get a new loan for the full value of your home. Then, you can use the money you get from this loan to pay off the rest of your current home loan and keep the rest for yourself.
Adding to your Home
People remortgage their homes for a number of reasons. One of them is to get money for something else. Most of the time, this means getting a second mortgage, which is a smaller loan based on the value of your home. This gives you money to fix up your home.
Combine all of your debts.
The last big reason to remortgage is to combine debts into one payment. Borrowers often have debts from many different places, such as a home mortgage, credit cards, car loans, etc. It can be hard to keep up with these loans, and the interest rates on many of them are high or change often. Because of this, many people find that combining all of their loans into a single remortgage loan saves them a lot of money and makes their lives easier.
