Ever wondered what the benefits of remortgaging actually are?
Are you getting the best deal on your mortgage?
If you are aware of better mortgage offers or you are simply coming to the end of a discounted offer, you need to start shopping around for a better deal. You can switch to a different mortgage product with the same lender or you can take your business to a competitor. This exercise has become increasingly common for both homeowners and professional investors. Once you have found the most beneficial mortgage for your needs it is recommended that you regular review your mortgage to ensure that you remain a savvy borrower and have the best deal possible. New and increasingly competitive mortgages are continually appearing on the market.
What are the benefits of remortgaging my property?
Benefit: You can reduce your rate of interest
Most borrowers are on the Standard Variable Rate (SVR) which is fixed by the lender at the beginning of your agreement however this can often be the most expensive rate of interest. Lenders often offer lower or discounted interest rates to attract new customers which can make switching (remortgaging) to a different lender extremely beneficial
Benefit: You can raise extra money
Homeowners who switch their mortgage to a lender offering a better deal will result in a gaining a saving. Extra money raised could be used for a number of things for example, making home improvements, investing in a new property or buying a new car. This method of raising money is usually cheaper than taking out a new credit card.
Benefit: You can consolidate your debts
Many homeowners in the UK have used the process of remortgaging to release equity in their property in order to use the money to pay off existing debts. This is often a sensible way of managing debt.
Please refer to the table below for the Pros and Cons of debt consolidation through remortgaging:
Pros |
Cons |
Your debt can be transferred in to a single more manageable payment. |
You may be switching your short term debts to long term debts. |
You can reduce your stress of meeting the deadline of multiple monthly payments. |
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. |
Mortgages generally have lower interest rates compared with credit/store cards and other loans. |
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Benefit: You can change the length of your mortgage term
Due to the length of time that mortgages can last it is obvious that your lifestyle and circumstances will change during this time. Some homeowners may want to pay their mortgage off quicker for example, before they retire. If you switc to a lower rate of interest whilst still maintaining the same monthly payment amount that you have been used to, you could potentially reduce the life of your mortgage by years. Others may wish to increase their term to reduce their payments if money is tight.
The decision to remortgage your property should be based on the following issues:
Remortgage Checklist
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That you will receive lower interest rates
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That you will benefit from a release of equity in your property
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That no restrictions exist on how you use the extra money
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That you should be able to clear you existing mortgage plus any arrears or debts
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That you have the chance to consolidate your existing debts into one more manageable monthly payment.
If your lender cannot offer the above mentioned benefits you need to continue shopping around for quotes. Please note that there are costs involved with remortgaging such as redemption penalties. Ensure that you are aware of all costs before going ahead with your decision.