Mortgage warning: Three key things to consider when remortgaging | Personal Finance | Finance
Getting a mortgage is a common way in which people are able to purchase a property, but the term in which a person has a mortgage may be around 25 years. During this time, borrowers may opt to remortgage, and this can be for a variety of reasons.
From cutting costs to debt consolidation, there’s many situations in which a person may decide to consider remortgaging.
The process of remortgaging is something which Paul Stringer, Director of the Norton Finance Group, has shared some insight on.
What is remortgaging?
“Essentially, remortgaging is where you look to agree on new payment terms with your current or new provider,” he said.
“A mortgage is one of the biggest financial commitments many of us have, but there is no reason why you need to stick with the same deal.
“It could be a chance to secure a better deal with better payment structures or interest rates, which could reduce monthly expenses.
“It could also be a way to raise money for things like home improvements.”
There’s a whole host of reasons when it comes to why a person may consider remortgaging, as Mr Stringer explained.
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“There are many reasons why someone might look to remortgage,” he said.
“Those looking to release equity or renegotiate their payment structure may consider remortgaging.”
He suggested some may remortgage in an effort to save money, too.
“You could secure a better rate,” he suggested.
“Mortgage rates continually change, the Bank of England base rate, which most mortgages are priced by, is currently historically low.
“It could be possible to save a lot of money on monthly repayments and overall loan costs by having a look around for a different rate. However, be sure to check your current deal as early repayment charges could be in place for leaving early.”
Should a deal be coming to an end, the borrower may opt to remortgage, rather than lapse onto the lender’s Standard Variable Rate (SVR).
Mr Stringer explained: “Once your mortgage deal ends, you are moved onto a Standard Variable Rate – this is generally a lot higher than a fixed rate deal meaning your monthly repayments could go up.
“Take a look at other deals a few months before your deal ends, sometimes it can take three to six months to get a mortgage approved, so being prepared is key.”
Debt consolidation may also prompt some to look into remortgaging.
“Remortgaging could be a way to consolidate your debts,” said Mr Stringer.
“This could reduce monthly repayments, but it is important to remember the total amount that will be owed could increase and could extend the length of time you are paying it back for.”
Alternatively, should a property value go up, the owner may be eligible for lower rates by remortgaging.
And, those who want a more flexible mortgage may also consider remortgaging.
“You may want to be able to take a payment holiday or overpay, whatever the reason mortgages come in many varieties,” continued Mr Stringer.
“However, make sure you are aware of any additional costs.”
Mr Stringer went on to warn borrowers that this option is not something which will suit everyone.
He went on to list three reasons why remortgaging might not be the best route for a homeowner.
“There has been a decrease in the value of your home – borrowing a lump sum against a house in this instance could mean you’ll end up paying more than the value of your house over time,” he said.
“If you haven’t been able to repay much of your mortgage value since purchase, say if you are on an interest-only plan – in this instance your monthly repayments could rise if you remortgage.
“If your financial circumstance has worsened since you first bought your house, it is likely you won’t get improved terms.
“Remortgaging offers are based on your financial situation, just as it is with an initial mortgage application, so your salary, employment, and credit scores are all considered by lenders.”
But, that’s not all that ought to be considered when remortgaging.
As fees may be involved when switching to another provider’s deal, he suggested speaking to the current lender first.
“There is also a likelihood that there will be a cost involved in applying for a new one,” he added.
Being able to afford to remortgage is another important consideration.
“Termination of an agreement will likely lead to fees, this is known as an early repayment charge.
“This is where you must pay your old lender for a portion of the interest they will lose out on.
“In the long run remortgaging may save you money but consider if you are able to afford to do it now.
“Some lenders might charge admin fees for any changes to a contract.”