Remortgaging

What are the Dangers of Remortgaging?

Whilst remortgaging must seem like an easy way to save money, you should be aware of some of the potential dangers of it before you go ahead with it.

You must work out your sums, and you must consider the full implications of remortgaging before you do it. You should measure the savings against the expected and actual costs. Whilst Remortgaging can save you thousands of pounds if it's the right one, you could also end up locked into an expensive and unsuitable deal should you not cover yourself against the pitfalls.

Firstly, redemption costs. Should you have a cash back mortgage or an existing discounted, fixed or capped rate deal, you could have a redemption deal on your loan, which kicks in should you cash it in before the deal is finished. You may even have an overhanging redemption charge, levied for years after the deal has ended. With cashback, you may have to repay some of it should you remortgage elsewhere. You may need to wait until the redemption period to pass, or your new deal may more than make up for it. Do your sums.

Then there are new redemption penalties on the mortgage you move too. If you move to a very low interest rate, you could find yourself paying for that generosity with redemption penalties tying you to your loan after the deal has ended. Shop around, as some lenders never charge redemption penalties.

Then, you should stop and think about why you are changing mortgage in the first place. Maybe you chose your current lender because of the great deals they were offering. Maybe their SVR was low. But now you want to change because their SVR is no longer competitive. Will your new they treat you so well when you are a mere existing customer rather than a new one? Find out the lender's five year SVR history, to see how consistent it is with new deals.

Those of you who took your mortgage out before October 2nd 1995 would qualify for help from the state should you become unable to work. It kicks in after eight weeks or claiming, and is worth 50% of the interest for the next 18 weeks and 100% after. You get no help if you took your mortgage out after that. Should you remortgage away from the mortgage you took out before the 2nd of October 1995, you could lose these benefits.

Remortgages used to be a method of debt consolidation, to reorganise messy finances. People still use this as a reason to re-mortgage, as mortgages are the cheapest way to borrow. Now, yes, you will bring your total monthly payments down, but you will actually pay more over the long term.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2009

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