How Can Remortgages Provide Benefits for Your Home?

 

As the fixed period of a mortgage expires, people often tend to remortgage. It is the process of taking out a new mortgage to replace the current one. Many homeowners remortgage in order to avail themselves of lower interest rates.

Although there are various benefits of remortgaging, the popular reason for doing so is to take advantage of affordable interest rates. A lender puts you on a fixed-interest rate deal when you take out a mortgage. It can last up to 2 or 5 years.

The lender puts you on standard variable interest rates as it comes to an end. These interest rates are not fixed as they fluctuate as the base rate changes. Standard variable interest rates can be higher than fixed interest rates. People take out a remortgage in order to save money on interest payments.

How does remortgaging work? 

Most of the people think that it means taking on additional debt. Even though it releases equity in cash, it is still favorable.

Remortgaging is a straightforward process that should start six months before the expiry of your fixed-rate period. Otherwise, you will likely end up paying very high early repayment fees. Now the question is whether you should remortgage with your current lender or with a new one.

Remortgaging means transferring from one mortgage deal to another and it requires a lender to know about your financial condition and the property you own. Since your current lender already has your information, it does not involve too much paperwork and fees.

If you apply for it with a new lender, it will take a bit longer time. You will have to pull up your financial and personal information, income proofs and other documents. Be ready to go through a credit check process. Remortgaging with a new lender is not as convenient as doing it with your current lender.

How can you benefit from a remortgage?

Here are the benefits you will likely get with the help of a remortgage:

• You will likely get better interest rates

The most common reason why a lot of people remortgage is that they want to save money on interest payments. The lender will put you on a standard variable interest rate as the fixed interest rate expires. Now your monthly payments will likely be higher than before.

Since you had taken out a mortgage two years before, your credit score may have been improved by now, but you will not be able to get a favour when you are put on a variable interest rate.

When you apply for a remortgage, you will likely get money at lower interest rates because of two reasons: your credit score has gone up, and your home equity has increased. It strengthens your financial condition so that you can enjoy lower interest rates.

However, early repayment fees will be applied that can go up to 2 to 5%. Despite that, you will be able to save on interest payments. Use a calculator to see how much you will be able to save money by paying early repayment fees. NatWest mortgage calculator can help you do so.

When the value of your property goes up, it means that your loan-to-value ratio has decreased and now you can get lower interest rates. You will have to apply for a remortgage to avail of lower interest rates. Remortgaging can release equity to help buy more money.

• You can borrow more money

Another benefit of refinancing is that you can borrow a large amount of money. As the equity of your house has increased, a lender can lend you more money based on the equity value. Further, you will be able to get it at lower interest rates.

However, it is necessary to have a reason for borrowing a larger amount of money. Since it releases equity in cash, you must have a genuine reason. Most of the people apply for a remortgage for home improvement and settling outstanding debts.

You will have to run a credit check and submit all necessary documents. You can get money at more affordable interest rates only when your credit score is stellar. If you have hefty unpaid dues, the lender likely calls your creditworthiness into question.

 Borrowing more money increases the cost of the debt, too, even though you get it at affordable interest rates. The repayment term will be extended over a period of months, and as a result, your monthly payments will whittle down, but you will be paying more money in total. The longer the repayment period, the larger the total cost of the debt will be. 

• It can help the mortgage settlement sooner

When you see a change in your financial circumstances, like you have got a pay hike or you have got a windfall, you will likely want to pay off your mortgage before time. The sooner you settle your outstanding dues, the sooner you will get rid of this obligation.

 You will have to overpay each month so you can quickly get rid of this. The problem is when you do so, your lender will charge early repayment fees, and they will not let you overpay more than the set limit as this is assumed that the longer you owe, the more interest they will earn.

Therefore, you may need to remortgage a new deal. When you apply for a remortgage, a lender will look over your income proofs to decide the size of monthly payments. You will likely be put on more significant monthly payments since you are now on a higher pay scale. This will help you get rid of the mortgage earlier. 

• You are looking for a better service

You may not be happy with the services of your lender. Despite extensive research, it is possible that you get tied up with poor services. Remortgaging can help you get rid of it. Some of the reasons why you want to quit your existing lender include:

• You want better communication.
• You are looking for easier access to your accounts.
• Immediate support from the customer support team when you have a doubt or a problem.
• Better financial advice

It is crucial to choose an honest and reliable lender – after all, you will be tied up with them for an extended period. 

Though remortgaging gives a chance to find out better services, it is generally recommended that you do proper research, so you do not run down the line.

The bottom line

Remortgaging can provide you with lots of benefits. It can help you avail of lower interest rates, borrow a larger amount of money, and help you get rid of the mortgage sooner. Though it has lots of benefits, it will not be a favorable option for anyone.

You will have to carefully examine if you are eligible and whether it actually helps you save money on interest payments. Talk to an advisor who can help you choose a deal that suits your financial condition.

You can also talk to a mortgage broker. They will scrutinize your financial situation and goals to help you find the best deal.

Description: Remortgaging can let you enjoy lower interest rates, borrow a larger amount f money, and get rid of the mortgage sooner.

Source: https://penzu.com/p/d29d398b