What is Remortgaging?
- Author Nick Flanagan
- Published August 24, 2021
- Word count 985
People sometimes get confused when it comes to "why do people remortgage". There are a number of valid reasons why people remortgage their property. If you currently have a mortgage and your repayments are high each month but your income has remained the same, this is an example of you having good financial status. Your property has low market value and you have made no improvements so far. In short, you can say that your mortgage is good as new.
This situation applies to you if you take advantage of fixed-rate remortgages. You basically take the value of your existing mortgage and add onto it the cost of your new home improvement job, then apply for a new loan: Remortgaging. The only difference with this new deal is that now you will have to pay a slightly higher interest rate due to the risk that the new lender has of losing his money if you default on him. The reason that lenders charge a higher interest rate is because they know that if you do not pay back the full sum on time they will lose the entire capital that they have put into the loan. This is why you should always ask whether you can take advantage of fixed-rate remortgages before deciding to take up an interest rate that could be higher than the rate that you currently pay each month.
Another good reason why people choose to remortgage is to borrow more money for home improvements. You can borrow more money on this type of remortgage because the initial repayment period is shorter. It is the period between the day you took out the loan until the day you complete the home improvements that are counted. So, if you want to increase the size of your garden or buy new furniture there is no better way to borrow money than through a remortgage. This is also ideal for those who want to spend a little money on their home before they get it up to speed with the rest of their home improvements.
If you have taken on any new or expensive debt recently, you could consider applying for a remortgage. Many lenders are willing to lend money to individuals facing the possibility of a short term period of financial hardship, so long as they are able to provide a solid repayment plan that shows them how they will be making repayments on their new loan. It is important to remember that the longer you take to repay your existing home improvement work, the bigger the chance of you falling behind and losing any further progress you have made. A remortgaging will simply allow you to catch up if you fall behind, allowing you to continue enjoying your current lifestyle.
If you have found yourself unable to keep up with your mortgage payments, your lender will often offer you a 'cash out' option at the end of the term of your ltv deal. You can then use this lump sum of cash to pay off your debts, effectively eliminating interest charges and other charges from entering into a new mortgage agreement with the bank. In many cases, you can also choose to move your house into the secured equity part of the ltv deal in order to free up some equity, thus increasing the equity in your home. However, your lender will usually only allow you to move into the ltv arrangement if you are in fact able to keep up with payments on your existing mortgage. If you were to fail to do so, your home could be at risk, even if your current home loan is still valid.
One of the main benefits of a remortgaging deal is that you will be able to save money on the overall cost of the property. Even when you have to take into account the additional costs of paying a builder or renovating the property, the savings made by taking on the remortgage are significant. The amount of money that you will save when you remortgage will almost always be higher than the value of the property itself. Therefore, it is important to bear in mind that in addition to paying fees to a builder or renovator, you will need to keep up with ongoing maintenance costs that could be running into thousands of pounds each month. In addition, you may need to make improvements to the property itself such as repainting and repaving, as well as maintaining the interiors and exterior of the building.
Another advantage of remortgaging is that it gives you financial security. As your repayments on the original mortgage are being spread over more years, you will eventually be repaying a much smaller amount every month. This means that as the period of the repayment has lengthened, your monthly outgoings will also decrease. As a result, you will soon find yourself with a lot more spare income and less debt to worry about. On top of this, it is often possible to borrow more money after taking out a remortgaging plan. Therefore, there is an opportunity to take out a larger mortgage and extend the term of the loan, which will reduce monthly outgoings.
If you are thinking about remortgaging, you should first make sure that the deal you are getting is likely to be worthwhile. It is not a good idea to borrow more money just because your house price is going up. Instead, look for a fixed rate, low rate or variable rate remortgage deal. Check online to compare the different quotes available from various lenders so that you can make sure that you get the best deal possible. Although the initial outlay of taking out a remortgage can be high, it will pay off in the long run, as you should be able to lower your monthly repayments and improve your credit score at the same time.
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