Remortgaging - The Basics
Remortgaging – The Basics
What is remortgaging? Remortgaging involves the transferring of your current mortgage debt from your existing lender to a new lender without moving home. However you can of course remortgage without actually changing lender.
The main reasons for remortgaging are principally to save money by paying a lower interest rate on your borrowed debt, to release some equity from your property, providing it is worth more than your outstanding debt, in order to finance home improvements or other personal projects, or, to consolidate existing debts that have higher interest rates than those charged by your mortgage lender and therefore reduce your monthly outgoings.
Before the early 1990’s, remortgaging was relatively unheard of and most mortgage holders would stay with their lenders for the complete duration of the loan. But as the property market took a decline, mortgages became much more competitive as lenders realised that perhaps the only way they could attract and obtain new customers, was to actually compete for each other’s.
Today’s remortgage market has therefore now become extremely competitive with so many offers available, both on the high street and online, offering attractive deals to reel in new customers and first time buyers. It is said that some 40% of new loans each month are now those of remortgages. But before deciding to remortgage, it is worth checking whether the cost involved will prove worthwhile, as it is possible that although you may find a mortgage with reduced monthly payments, the cost to actually move it from lender to lender may just soak up any savings made. Also, the overall repayment term is generally extended which means you would therefore be paying the interest over a much longer period.
Before you actually consider shifting mortgage companies it may be wise to check your existing policy’s terms and conditions. You will find that most mortgages offering special rates over a fixed period i.e. a fixed rate mortgage, capped or special discount rate mortgage, do charge an early repayment fee or redemption penalty for paying off your mortgage before the end of its set term. So it is worth weighing up this cost before actually deciding to switch mortgages.
As well as any redemption penalties you may also be faced with the same charges you paid on arranging your first mortgage. These may be lender’s booking fees usually fixed around £250-500, a valuation fee, a solicitor’s conveyance fee if you are changing lender, and potentially a higher lending charge for the increased mortgage volume. However as you are not actually moving house there is no stamp duty cost involved.
Therefore you must make sure that what you might gain and save through switching lenders, in the form of a lower interest rate is not lost or swallowed up through higher overall charges. Do shop around and check online for the many remortgage deals on offer and remember that as with any mortgage, your home may be repossessed if you do not keep up with the repayments.
Published on September 21, 2007
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