There are many reasons for remortgaging your property. It is very important to review this to make sure you understand all the pros and cons, weigh up all the options to ensure you make the right decision for you. Here are the main reasons for remortgaging:
- Lower interest rates: One of the primary reasons people remortgage is to take advantage of lower interest rates when their existing rate is due for renewal. If interest rates have dropped since the initial mortgage was taken out, individuals may choose to remortgage to secure a new loan with a lower interest rate. This can result in reduced monthly mortgage payments and potentially save a significant amount of money over the long term.
- Debt consolidation: Remortgaging can be a way to consolidate existing debts, such as credit card debt or personal loans, into a single mortgage. By incorporating these debts into a mortgage, individuals may benefit from lower interest rates associated with mortgage loans compared to other forms of borrowing. It simplifies debt management by having a single monthly payment instead of multiple ones. Although this option normally brings down monthly expenditure, you tend to pay more interest for a longer period of time.
- Accessing equity: Over time, a property’s value may increase, resulting in equity growth. Remortgaging allows homeowners to access that equity by borrowing against it. They can use the released funds for various purposes, such as home improvements, investments, education, or other financial needs. This is commonly known as a cash-out refinance.
- Changing loan terms: Some individuals may choose to remortgage to alter the terms of their loan. For example, they might want to switch from a variable or tracker rate mortgage to a fixed rate mortgage to provide stability in monthly payments. Conversely, others may opt for a product with no early exit fees if they anticipate interest rates decreasing or if they plan to sell the property soon. The above explains the pro’s to remortgaging your property, however, it’s important to consider the cons as well. There can be difficulties along the way as lenders have such diverse policy which can favour some scenarios over others.
What difficulties can you expect along the way:
- Qualification requirements: As you’re approaching a new lender entirely, they want to validate that you can still afford the mortgage. Remortgaging is subject to affordability, criteria, and credit checks. If your financial situation has changed since your initial mortgage, such as a decrease in income or an increase in debts, you may face challenges in securing a new mortgage or obtaining favourable terms.
- Costs and fees: Remortgaging typically involves costs and fees, including valuation fees, legal fees, and arrangement fees. These expenses can add up and should be considered when considering whether to remortgage. Fee structures that lenders charge can vary, so it’s important to work out what the most cost-effective deal is for you.
- Early repayment charges: If you’re existing product has early exit fees, remortgaging before the term ends will incur this fee. These charges can make the process counterproductive and could work out more costly depending on the specific scenario.
- Risk of property down-valuation: If the value of your property has decreased since you obtained your initial mortgage or the valuer doesn’t agree with the property value figure provided, remortgaging could result in borrowing against a property with less equity. This may limit your options and make it more challenging to secure favourable product.
