Remortgaging is a process that enables homeowners to switch their existing mortgage to a new lender or to negotiate new terms with their current lender. It can provide homeowners with the opportunity to save money on their monthly repayments, to consolidate their debts, or to release equity from their property. In this blog, we will explain how remortgaging works and the factors that homeowners should consider before deciding to remortgage.
What is Remortgaging?
Remortgaging is the process of refinancing a property by replacing an existing mortgage with a new one. It is typically done when the existing mortgage term comes to an end, or when a homeowner wants to change the terms of their mortgage. Remortgaging can allow homeowners to save money by getting a better interest rate or by consolidating their debts into one loan. It can also enable homeowners to release equity from their property, which can be used for home improvements, to pay off debts or for other purposes.
How does Remortgaging Work?
When homeowners decide to remortgage, they will need to apply for a new mortgage with a lender. The lender will assess their application and determine whether they are eligible for the new mortgage. If the application is approved, the lender will provide the homeowner with a new mortgage offer, which will include the terms of the new mortgage, such as the interest rate, the term of the mortgage, and the monthly repayment amount.
Once the homeowner has accepted the new mortgage offer, the lender will pay off the existing mortgage and the homeowner will begin making repayments on the new mortgage. The process of remortgaging typically takes between four and eight weeks, although it can take longer if there are any complications.
Factors to Consider Before Remortgaging
Before deciding to remortgage, there are several factors that homeowners should consider:
Current Mortgage Term
The first factor to consider is the current mortgage term. Homeowners should check when their current mortgage term ends and whether there are any early repayment charges if they decide to remortgage before the end of the term. If the early repayment charges are high, it may not be worth remortgaging until the current term ends.
Interest Rate
The interest rate on the new mortgage is an important factor to consider. Homeowners should compare the interest rates on the new mortgage with their current mortgage to determine if they will save money by remortgaging. If the interest rate on the new mortgage is lower, the homeowner may be able to save money on their monthly repayments. However, if the interest rate is higher, it may not be worth remortgaging.
Monthly Repayment Amount
The monthly repayment amount on the new mortgage is also an important factor to consider. Homeowners should calculate their monthly repayments on the new mortgage and compare them with their current monthly repayments. If the monthly repayments on the new mortgage are lower, the homeowner may be able to save money. However, if the monthly repayments are higher, it may not be worth remortgaging.
Debt Consolidation
Homeowners who have multiple debts may want to consider remortgaging to consolidate their debts into one loan. This can simplify their finances and reduce their monthly repayments. However, it is important to consider the interest rate and the term of the new mortgage, as well as any early repayment charges on the existing debts.
Equity Release
Homeowners who have built up equity in their property may want to consider remortgaging to release some of that equity. This can provide them with a lump sum of money that can be used for home improvements, to pay off debts or for other purposes. However, it is important to consider the interest rate and the term of the new mortgage, as well as any early repayment charges on the existing mortgage, as well as the potential impact on their monthly repayments.
Fees and Charges
When remortgaging, homeowners should be aware of any fees and charges that may apply, such as arrangement fees, valuation fees, legal fees, and exit fees. These fees can add up, so it is important to factor them into the overall cost of remortgaging.
Credit Score
Homeowners should also consider their credit score when deciding to remortgage. Lenders will assess their credit score when considering their mortgage application, so it is important to maintain a good credit score. If their credit score has improved since taking out their current mortgage, they may be able to get a better interest rate on the new mortgage.
Income and Employment
Lenders will also assess the homeowner’s income and employment status when considering their mortgage application. If their income or employment status has changed since taking out their current mortgage, this could affect their eligibility for the new mortgage.
Future Plans
Finally, homeowners should consider their future plans when deciding to remortgage. If they plan to move house or downsize in the near future, it may not be worth remortgaging. However, if they plan to stay in their current property for the foreseeable future, remortgaging could be a good option to save money or release equity.
Conclusion
Remortgaging can provide homeowners with an opportunity to save money on their monthly repayments, to consolidate their debts, or to release equity from their property. It involves applying for a new mortgage with a lender and replacing the existing mortgage with the new one. Before deciding to remortgage, homeowners should consider several factors, including the current mortgage term, interest rate, monthly repayment amount, debt consolidation, equity release, fees and charges, credit score, income and employment, and future plans. By taking these factors into consideration, homeowners can make an informed decision about whether remortgaging is right for them.
