A Guide To Remortgaging
Remortgaging refers to the process of taking out a new mortgage in order to pay off your old one. Whilst this may seem like a strange thing to do, it can actually have many benefits if you are in the right financial situation. It offers you the chance to find a mortgage that offers lower monthly repayments along with the option to consolidate other debts into one easy to manage repayment.
It is possible for remortgaging your house to save you thousands of pounds but this is not the case for everyone. You should think long and hard before you decide to remortgage because if your financial situation is not suited to it as a plan, you could end up losing out significantly.
One of the main reasons that people decide to remortgage is changing interest rates. If you think that you could be saving money by moving to a mortgage with a fixed rate of interest or even a variable tracker rate mortgage, then you may want to consider remortgaging.
Whatever your circumstances, it is a good idea to look at a range of deals before deciding upon a new mortgage plan. By doing this you will be able to make sure that you don't get caught out by a bad deal and end up overpaying for your new mortgage. We offer a free and impartial mortgage comparison service that allows you to take a lot at some of the best deals out there. By shopping around, you allow yourself to make an informed decision on the mortgage that you end up choosing.
Deals On Remortgages
The most common reason that people remortgage is to try and find themselves a better deal than the one they are currently receiving. The main way that deals will differ is in their monthly repayments so if you can find one with lower monthly payments, you will lessen the financial burden that the mortgages places on your household.
Normally people start to consider shopping around for a new deal on their mortgage when they are around two to five years into their current plan. The reason for this is that many mortgage lenders offer really low deals at the start of a plan. They do this in order to entice new customers to take out a loan with their company instead of their competition. This means that you won't be paying much at the beginning of your term and will benefit from lower rates than you normally would.
Whilst it is a good idea to go for plans that have good introductory offers, these cheap rates don't last forever. This means that once they're over you will end up paying more than you did initially. This is when you may want to look around and see if you can get a better deal on a new plan.
One thing that you should consider before you rush out and get yourself a shiny new mortgage is whether or not you will be charged much to switch. Many mortgages have early exit fees and in addition to this you will need to fork out for a survey and probably some legal fees too. Many providers will also charge you a fee to switch your mortgage over to them.
One way that you can help yourself save money is by checking the difference in APR (annual percentage rate) between your current plan and your new one. Once you have done this you should determine how much the remortgage will cost you in exit fees etc. If it still works out cheaper, then you can be fairly certain that the move will make financial sense.
There a few things that will affect how good a new deal you will be able to find. Like any other loan, the lender will look at your financial situation and your credit rating in order to establish how likely you are to default and whether or not you seem capable of paying the loan off. Another factor that will influence the price of your new plan is the amount that you want to borrow - this is known as the LTV (loan to value) rate of your deal. The less you are asking to take out on your loan, the more likely you are to find a good deal on your new mortgage.
Debt Consolidation With Remortgages
It is tempting to think that because interest rates are so much lower on mortgages than they are on almost any other type of loan, it makes sense to move your other debts into this one. However doing this will not always save you money, it depends entirely on your individual situation so there are a few things you should consider before doing this.
Your mortgage will probably last longer than your other debts. This means that if you move your debts onto your mortgage, you may end up paying more to clear them than you would have normally. The reason for this is that even though the interest rates are smaller per year, you may end up paying over the course of more years. In some cases this can mean that you pay significantly more but this is not always true.
It is a good idea to sit down and work the total that you will pay if you stick with your current lender, without consolidating the debt.
Once you have done this you should look into how much you will end up paying if you were to switch the debt to your mortgage. It is also important to consider any additional charges that you may have to pay to take out a new mortgage. These costs would include things such as cancellation fees and legal costs, along with the price of having your property surveyed.
Different Types Of Remortgages
Once you have determined exactly what you would like to accomplish with your remortgage, it is a good idea to then try and work out which form of deal you would like to switch to. Whilst there are a huge amount of different deals available on the market, these can all be put into three broad umbrella categories. These three types are "Fixed Rate", "Tracker" and "Offset" mortgages.
A fixed rate mortgage allows you to set the interest rate of your mortgage to a certain level that will not change. Generally mortgages are offered at fixed rates for between two and five years. These deals are good for people who like the security of know exactly how much they are going to have to pay each month on their mortgage.
One drawback of this type of deal is that if interest rates fall, you will not benefit from the reduction in prices. Many people see this as a price worth paying for the peace of mind that having a fixed rate mortgage offers. It is also worth noting that if interest rates rise, you will benefit from having a mortgage that is fixed at a lower rate.
The second type of mortgage that you may want to consider is a tracker mortgage. This type of mortgage is different from a fixed rate plan because it allows your interest rates to change. Normally tracker mortgages allow customers to set their rates at a fixed percentage above the base rate set by the Bank of England.
One benefit of this type of mortgage is that it allows you to benefit from any falls in interest rates that may occur during the term of your plan. Conversely, if interest rates rise, so will the amount that you have to pay monthly. This means that it may be harder to budget precisely for this type of deal.
The last type of mortgage that you could apply for is an offset mortgage. This type of mortgage essentially combines your mortgage and your savings account. What this means is that if you have money in your savings account, it is counted as an overpayment on your loan. The benefit of this type of mortgage is that by having savings put away, you can save yourself loads of money on interest and you can still access your savings whenever you want.