Do you know that around a third of all home loans made in the UK are actually remortgages? Yes, they are. So…
What is remortgaging?
A remortgage is where you take out a new mortgage on a property you already own – either to replace your existing mortgage or to borrow money against your property.
Also known as refinancing in the United States, it is the process of paying off one mortgage with the proceeds from a new mortgage using the same property as security.
In the United Kingdom, the majority of remortgage rates track the Bank of England base rate which has been at a historic low of 0.5% since March 2009.
A base rate is the interest rate set by the Bank of England for lending to other banks, used as the benchmark for interest rates generally
Now, that we are clear about what remortgaging is, the truth is that it isn’t right for everybody.
Who is it good for?
For instance, remortgaging is good for you if your home’s value has risen high since you took out your mortgage. This may put you in a lower loan-to-value band, and therefore make you eligible for much lower rates.
Another situation that is good for remortgaging is if you’re worried about interest rates going up. Although you need to fact check your rates so that you do not just put yourself in panic mode. However, if it’s the Bank of England base rate that is predicted to go up, this may affect your mortgage payments directly, depending on the type of mortgage you have.
Also if your current deal is about to end, remortgaging might be a good investment strategy to get on. Nevertheless, there are some reasons to choose to remortgage.
Remortgaging can help you borrow more.
If your current lender says no to lending you more money or the terms it’s offering aren’t very suitable, remortgaging to a new lender might enable you to raise money cheaply on low rates. Just remember to take all the fees into account to consider if it’s really worth it.
The most commonly accepted reasons to raise money are for home improvements and paying off other debts. However, be prepared for your lender to ask for evidence if you are borrowing a large amount, e.g. builder quotes, or proof that you have paid off the debts.
When you don’t need to remortgage
Stop rolling with the crowd on every strategy you hear is good, instead, make sure to be sure it’s the best for you. In the case of remortgaging, don’t do it if you’re already on a great interest rate because it is possible that you may already have the best deal in town. Again, it gets down to taking the time to cross-check and compare.
In addition, when your mortgage debt has fallen below a certain amount – say around £50,000 – it may not be worth switching lenders, simply because you are less likely to make a saving if the fees are high. In fact, some lenders won’t even take on mortgages below £25,000.
The smaller your mortgage, the worse the effect of any fees you need to pay. Quite often, in this case, you’ll be better remaining on the higher interest rate.
Also, when your early repayment charge is large.
A large early repayment charge could mean that it’d be utter foolishness to move before the end of the incentive period. Do your calculations right to find out If it would cost too much to free yourself from your current deal. Whatever you discover will help you make the right decisions for your progress.
Buying a house is awesome, and buying more than with this remortgaging strategy is great. But one thing is critical to achieving this, and that is being creditworthy and getting expert advice. Experts have experience doing these things and they can shorten the learning curve.
To your success!