Real Estate

Remortgages guide

Outlined below is a useful remortgages guide. Remortgaging has become increasingly popular due to the relatively simple and flexible process.

A remortgage is exactly as the name suggests, taking out a new mortgage and repaying your existing one in order to realise equity and sometimes to reduce monthly payments.

Basically, a remortgage is when you transfer your existing mortgage agreement to another lender. A remortgage will mean that the new lending company will pay the old provider the balance of the amount outstanding and you will continue making your payments to the new lending company.

Many people do not realise that they can simply pay off their current mortgage and take out a new one. By remortgaging your home, you could save significant amounts on your monthly payments.

Review your current mortgage. If you feel you are paying excessive rates of interest, compared to other lenders then a remortgage may save on your monthly payments. Alternatively, you may be looking for a way to finance an extension or purchase a new car, you could seek to increase your mortgage and take the extra sum as cash.

A remortgage can be used for the purpose of gaining lower interest rates on your mortgage or raising finance through releasing equity. Releasing equity is a good way of raising additional finance. If your home has positive equity – its market value is greater than the outstanding mortgage – you can increase the size of your mortgage.

A remortgage is a great way of saving money, as it is likely to lower your mortgage interest rates. A mortgage is also one of the cheapest forms of loans around, so if you’re looking to raise finance, it makes sense to remortgage your home.

There are various reasons why someone would remortgage. Quite often it is just a cost saving exercise to reduce the monthly payment, although increasingly it is seen as a way of consolidating debts and reducing the overall household outgoings each month.

One of the most common reasons for remortgaging is to reduce costs. By switching to a lower interest rate you can either benefit from lower monthly repayments, or keep the monthly repayments the same, thus repaying the loan quicker and reducing the overall term of the mortgage.

Another reason to remortgage is in order to raise additional cash. Due to the rapid rise in property values over the past few years, many people now have mortgages which are well below their home’s current value. The difference between the property value and the mortgage debt is known as equity. The majority of mortgage lenders will allow you to increase the size of the mortgage in order to tap into some of this equity. The cash raised can be used for a variety of purposes, such as home improvements, holidays, a new car, or the consolidation of existing debts.

The advantage of borrowing money against your property is that the rate will almost certainly be better than if you took out a personal loan, and because you can spread the cost over the remaining term of the mortgage, the repayments are lower.

Unlike moving house, arranging a remortgage can be surprisingly simple. There are no chains of buyers to worry about, so the whole process can often be completed in a few weeks. The remortgaging process from start to finish normally lasts between 4-6 weeks.

In terms of costs there is no stamp duty to be paid, as you are not purchasing a property. Many lenders will pay some or all of your valuation and legal fees. In some cases there may be an arrangement fee or booking fee from the new lender.

Whether to remortgage depends on interest rates. You always have to be sure that you can meet the repayments whatever the economic climate. There may also be redemption penalties on your existing mortgage and you will need to take these into account when assessing how much money you could save by remortgaging.

About the author
John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the website.