For many homeowners, mortgage repayments represent probably the single biggest monthly outgoing. Saving on the cost of those repayments is widely welcomed. And remortgaging offers a possible way of doing just that.
Remortgages work on a simple principle – by providing the funds to pay off your existing mortgage, you are free to enter a new mortgage agreement which may be offered at a more attractive rate of interest or because a change might allow you to find a product more suitable to your current needs.
Remortgaging recently hit a seven-year of £6.4bn in April this year, proving how popular it is.
But paying less for your mortgage or changing its terms is not the only way you might use a remortgage to save money:
A first remortgage
- if you own your home outright, the security might be used to secure a mortgage loan – a mortgage taken on such an “unencumbered” property is also known as a remortgage.
- a secured loan such as typically may be much cheaper than other ways of borrowing, thus saving you money on the repayment of that borrowing.
- if you have had your existing mortgage for some time, you may have built up significant equity in your home.
- a remortgage may help you release this equity, thus giving you the funds to invest in other property – a holiday home, perhaps – at a rate of interest that may be more favourable than raising the funds elsewhere. This, too, may result in a remortgage saving you money.
Purchasing an equity share in your home
- a remortgage might also be used to help you purchase the share of the equity you formerly owned in your home, allowing you to continue to live there.
Debt consolidation remortgage
- you may have a number of different loans and lines of credit, each with their own – frequently high – rate of interest.
- by arranging a remortgage, you may be able to consolidate all of these outstanding commitments under a single agreement, with a known rate of interest, which is likely to be more favourable than that of each separate loan or credit balance – thus saving you money on the repayment costs.
A serious move
Arranging a remortgage is a serious step and one which may involve your entering a long-term financial commitment. It may also take a few weeks or more to arrange.
This is especially likely to be the case if you are looking to swap your existing mortgage with a new one – whether from a new lender or simply by changing products from your current mortgage lender.
There are a number of potentially complicated and involved issues to resolve and calculations to be made in order to compare your existing arrangements with any alternative remortgage offer, including rates of interest, the term of the loan (the number of years your existing mortgage has to run and the period over which the new loan needs to be repaid), together with the costs of setting up the new mortgage – which typically include legal fees for drawing up the agreement and fees for the survey of the property involved, and the penalty fee charged by most mortgage lenders for quitting the mortgage before the initially agreed term.