For many people, staying on top of their personal finances is stressful and complicated. In most cases, the biggest outlay of capital they will incur in their lifetime is the purchase of their homes. Securing one’s first mortgage is a daunting task, plagued with difficult decisions and lengthy paperwork. So, when the time comes to renew the mortgage, many tend to procrastinate.
But the thought of remortgaging your property should not make you nervous or leave you with analysis paralysis. In fact, remortgaging makes a lot of financial sense in most situations. Very few homeowners continue paying their original mortgage deal until it is paid off. Most people’s budgets and needs change over time; therefore, shopping around for a new deal that suits their new financial situation is a smart move.
What is a remortgage?
A remortgage loan replaces your existing mortgage with a new one from either the same lender (known as a “product transfer”) or a new lending provider. It does not involve moving to a different property and the new mortgage will be secured against the value of your home, just like your first mortgage.
People choose to remortgage their homes for a variety of reasons. One of the most common ones is to switch to a better deal so they can save money on interest. The latest figures indicate that borrowers paid £140 million a day in interest during January 2019. That is a whopping number. Thankfully, the increased competition in the sector and the fact that a new deal appears every month in the market provide homeowners scope to make savings.
Remortgaging is a process by which you release the equity in your home. Doing so allows you to borrow more money that your current mortgage amount from a major bank or lender. The process of applying to remortgage in order to release equity in your home is similar to the application for a mortgage. Upon remortgaging, you would normally be offered an introductory deal with competitive interest rates.
When remortgaging your home with your existing bank or lender, by moving on to a new deal or different rate to your existing mortgage, there is normally no solicitation required. This process is a form of financial product transfer. However, if you decide to move to a different lender, in the event that you have been offered a better deal to remortgage, a solicitor or conveyancer would be required in order to help you with the legal aspects of the process.
The main benefit of remortgaging is that you will be offered lower interest rates on the amount of money that you wish to borrow. A proportion of your home equity can be used to take a loan that you require to meet your financial needs. Finally, some borrowers may wish to use the opportunity of remortgaging to help with consolidating their debts into a single and affordable repayment plan for their existing debts.
Why it makes sense to remortgage
Remortgaging your home to secure a better rate
Saving money is the main driver for most people. After the introductory deal has ended, the newer higher interest rate is no longer competitive; hence, most households switch to a more affordable interest rate. Enlisting the help of a broker can ensure you end up with one of the best deals on the market and thus reduce your future monthly payments.
Remortgaging your home to consolidate debt
Many UK households struggle to pay off debts. According to a report from the National Audit Office, 8.3 million people are unable to pay off debts or house bills. If you are in this situation, you may want to consider remortgaging to free up more disposable income each month to pay off your other financial obligations. It is an affordable way to consolidate debts.
Remortgaging your home to make home improvements
Building an extension or repurposing an old attic can be costly projects, but these improvements could potentially increase the value of your property over time. Therefore, they should be considered more as a reasonable investment than a lavish expense. Remortgaging is a sensible way to fund home improvements under these circumstances.
Building an extension or repurposing an old attic can be costly projects, but these improvements could potentially increase the value of your property over time.
Whether to reduce monthly payments or to release home equity, remortgaging your property is an important financial decision that should not be put off. In most cases, the time spent scouring the web for a better deal can produce sizeable savings and help you keep your financial commitments in check.