Remortgaging is the process of transferring your loan from one bank to the next or from one type of product to another from that same bank. A majority of those who have an existing mortgage will have the fixed or discounted rate for a specified period that is typically between two and five years. Once this time period is over, the current lender will transfer their mortgage to the standard variable rate of the lender (SVR) that will likely be higher than the rate they currently pay.
Benefits of refinancing
Reduce your mortgage payment monthly
If you refinance your mortgage to an lower fixed rate or adjustable rate mortgage this could decrease your monthly mortgage payment. You may also think about reducing your current mortgage term to make your mortgage payment faster.
Get better control over your finances
You can manage your financial situation better by transferring your mortgage into fixed rates and knowing that the mortgage payments will stay the same for a couple of years. A typical fixed rate mortgage of 2 years gives you peace of mind for the longer term, and not have to be concerned about the fluctuating monthly mortgage payment.
You can borrow more money
If you’re planning to make some home improvement projects or have other big expenditures in the near future, it is possible to refinance your mortgage in order to get the funds required and also lower the interest rate on your mortgage paying. It is essential to consider first if refinancing is worth it as you could be able to receive a higher increase on your current mortgage, which could turn out to be less expensive overall.
Consolidate debt
If you’ve been able to fall into debt through credit card or any other short-term loans and you’re struggling to pay the debt then you can get rid of the debt by refinancing your home to let some money out. Remortgaging to repay debt should only considered in the event of an emergency since the amount of interest you have to pay for the remainder of the term of your mortgage will be more than the amount you pay on the short-term loan. In addition, you’ll have inform your lender of the reason for refinancing, which can impact your eligibility for the mortgage.
Reduce your LTV for your home mortgage.
The ratio of your mortgage to the value of your property (known as the loan-to-value , or LTV) could affect the interest rate you pay with other terms that are associated with your mortgage, like the deposit amount and the fees. If you find that your LTV has diminished in the course of time, or your property has grown in value, you could qualify to receive a higher mortgage rate and terms.
The disadvantages of remortgaging
Eligibility
In the event that you opt to refinance with a different lender, you’ll be considered an applicant who is new and has to complete all the paperwork and checks that are required. If you’ve become self-employed or created an entirely new venture prior to the time you took out your initial mortgage, you’ll have to present two years of accounts or other proof of your income. The amount you spend on a daily basis will be scrutinized to ensure that all credit card, loans or other unnecessary expenditures will be uncovered during the process of checking.
Then you can borrow more
If you take out more loans for home improvement, then increases in payments can create financial stress, and you may have cut back on other expenses to balance your balance of your books. In the past when you take out more funds to consolidate debt, then the rate of interest that you pay during the duration of the mortgage will be more than the interest you pay for the short-term debt.
Costs
If you stay with your current lender , you could only be assessed an amount for redemption to close your current loan, however in certain situations it is possible to waive this. If you decide to switch to a new lender, there are costs to be incurred when you remortgage your home, like a valuation of your property as well as an arrangement fee, and also legal fees. It is essential to ensure that the cost of the remortgage doesn’t exceed any savings you can get from your monthly mortgage expenses.
Do I need to refinance my mortgage?
How to choose the most appropriate mortgage
Finding the right mortgage for your needs is one of the main components of a successful financial plan. The market for mortgages is that lenders are looking to increase their rates to draw new customers, therefore it is sensible to profit by review your mortgage regularly. It could also be worth applying for a remortgage to free money for home improvement projects that can increase what you can get for your home.
Things to think about prior to remortgaging
You must consider the following questions prior to refinancing:
Do I need to pay a fee for redemption to my lender of choice to refinance?
Do I wish to take out more money ? If yes, how much?
Have my funds been in order? no debt issues or CCJs?
Can I prove my earnings by submitting bank statements or two years of accounts?
Have I done some research to determine the best mortgage for my situation?
Have I figured out the cost associated and the amount I can reduce my expenses?
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