Why Remortgaging Is a Great Tool For Those Consumers Looking To Refinance
People want to remortgage for various reasons, including the ability to obtain a cheaper interest rate when compared with what their current mortgage lender is offering them, which is turn allows for lower monthly repayments. Remortgages are often sought when the original mortgage was offered at an introductory rate, for example a fixed term of 5 years, and then the deal comes to an end and the mortgage reverts to the standard variable rate.
Another reason for a remortgage is to refinance in order to save money on high interest rates on their credit cards and unsecured loans. Remortgages may also be sought if the homeowner has difficulty obtaining a new mortgage for a new property purchase, as the remortgage option is often cheaper and easier to do. But it is important to remember that mortgage lenders is the UK are still wary since the financial crisis.
If you have been looking to move home, you may find that it is more difficult to obtain finance. This is because the costs associated with remortgages are lower than for brand new mortgage contracts on the whole. As many lenders still have tight criteria for mortgage lending since the financial crisis in the UK, it is often easier to obtain the finance with your existing lender whom you have a track record with.
For example, you may be on a high fixed rate and interest rates have fallen significantly since you took out your deal. By shopping around for a remortgage deal you may be able to save a significant amount on a monthly basis even if your existing deal isn’t about to end.
It is usually the case that mortgage lenders will add a penalty clause to create additional obstacles for their clients to remortgage and to make sure that they do not lose out on potential profits, if a client decides to terminate their contract before the term of the loan has expired.
This penalty, known as the early repayment charge, commonly applies to mortgages that are still within the introductory rate period. So a 5 year fixed mortgage may have an exit penalty on it until the 5 years have elapsed.
As well as costs to your existing lender for ending your mortgage deal there are likely to be costs associated with the new remortgage deal. These can include arrangement fees, valuation fees and conveyancing charges. When deciding whether a remortgage is financially viable it’s important that you take all the costs into consideration.
When equity is built up in your property, remortgaging can often allow you to release that money so that you can improve the property by renovating and redecorating, or adding new features such as a conservatory, refurbishing the kitchen or converting the loft into a new bedroom for guests.
The released capital can also help if you have unsecured debts, as these can then be secured against the house which means that the interest rates will be lower, and so subsequently will your monthly repayments. This can help with your general financial stability.
It would almost certainly be in the best financial interest of a borrower to consolidate these debts, in order to gain a more reasonable rate of interest. The quickest and easiest way to achieve this is through a remortgage, though the current window of low interest rates is bound to come to an end sooner rather than later.
Timothy Frodsham writes for JustRemortgages.com one of the UK’s top sites for the latest remortgage rates and best remortgage deals.