Remortgages

Remortgaging is a term for changing your mortgage product. It could be to a different mortgage provider or to a different product within the same provider, and you may not have moved home.

UK People have quite a few reasons for remortgaging. Nowadays, one of the most common is that their initial discount or fixed rate deal has run out and they don't want to be moved onto a standard variable rate. People will want to try and get a better rate, as they can save a great deal of money by transferring their mortgage to a rate that is cheaper.

Some people remortgage as their property's value has increased in value and they wish to obtain a lump sum by releasing equity from their property. This can be very useful for funding home improvements, or perhaps buying a car. If your home was valued at £200000 and you bought it with a mortgage of £180,000, you would have equity of £20000. After 5 years, your home's value increases to £250000 and your mortgage payments take your capital owed on the house to £155000, meaning that you now have £950000 in equity. Lenders are happy to remortgage for 75% of the value of a home in this situation, so you could get a loan of £187500, meaning that you can get a lump sum of £32500 (which is the difference between the remainder of the mortgage and the amount you re-mortgaged for). This being a mortgage, you should find that the interest rate you pay will be cheaper than with a personal loan. Since you can release quite a good deal of money from remortgaging, it may also be useful to use the lump sum to consolidate your debts and pay off smaller unsecured debts such as credit card bill of loans with higher interest payable.

When re-mortgaging, you should find out about the fees involved, such as valuation fees, solicitor's fees, arrangement fees, any mortgage indemnity guarantee (MIG) plus redemption fees as well to make sure that the lower interest rate you could obtain is not made irrelevant by fees. Redemption fees are becoming less frequent, although they are still around. These are fees you could be liable for should you repay the mortgage before the end of its term. Remember that re-mortgaging is basically paying off your existing mortgages and taking out a new mortgage. Many people remortgage when their initial discount period end, but lenders put redemption penalties on the end of these initial deals in order to get their money back should someone take advantage of the discount and then try and leave, or if you try and remortgage during the deal.

 

 

 

 

 

© AskFinancially.com 2008

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