Re-mortgages are increasing in popularity, accounting for a third of all home loans taken out in the country. But what is a re-mortgage and why should you consider getting one? In this article, well discuss what a re-mortgage is. Well address the benefits of seeking a re-mortgage and who should consider getting one. Well also share factors you need to consider before you ask your current lender for a re-mortgage.
Whats a Re-mortgage?
A re-mortgage is simply the process of taking out a new mortgage on your home. It could be with your current lender or another provider. The new mortgage pays off the old mortgage in the process of issuing a new one.
The Benefits of Re-mortgage
You could probably find a better mortgage rate when applying for a re-mortgage. Capped mortgages, tracker mortgages and discount mortgages come with lower promotional interest rates for at least a few years of the loan. When the promotional term is over, the lender switches you to a standard variable interest rate. If you re-mortgage at that point, youll avoid the higher interest rate and an early repayment penalty. The fees are probably lower than the early repayment fee of your current loan, whether or not the re-mortgage is done through your current lender.
If you have equity in your home, you can use the re-mortgage to take out cash to pay for repairs and upgrades. The benefit of taking cash out of the equity of your home when you plan on work like this is that you dont have to ask a lender to approve the type of work youre having done or worry about whether theyll give you the cash when you need to pay the contractors. You simply receive the cash after the re-mortgage closes, and you can spend it as you choose. You do have to be careful not to blow your renovation budget or spend the money on other expenses, or else you risk needing another loan to cover the remaining work to be done.
Factors to Consider Before Re-mortgaging Your Home
Not all lenders have the same terms, fees, or even interest rates. You can check several remortgage conveyancing quotes from a site like Compare Conveyancing Quotes before you pick one since you could see significant differences between monthly payments or interest and fees paid over the life of the loan. Make sure the lower interest rate isnt cancelling out the fees you pay upfront or interest in the fees rolled into the loan balance.
You can also alter the loan term when applying for a re-mortgage. A shorter loan term results in higher monthly payments, but youll pay off the loan faster.
Your eligibility depends on your income and your homes value. If the home value has fallen, you may not qualify for a re-mortgage or be in a different LTV bracket that charges a higher interest rate. If you cannot prove your income or your income is now lower, you may not qualify for a re-mortgage.
Seek several quotes before your re-mortgage your home since there is significant variation in the fees and interest rates between lenders.