Remortgaging is a simple refinancing mechanism which can be used to get more cash against your house or to decrease the cost of capital, which is interest rate. The best mortgage deals often come with a timeline. If you consistently follow the financial markets, you will know that the interest rate fluctuations can drive the cost of borrowing up or down very easily.
There are quite a few reasons for you to consider Remortgaging:
1. You can now borrow at a lower rate:
This is one of the most common reasons why people consider a remortgage. Suppose, the floating interest on your GBP 250,000 mortgage comes to about 2%. You have been following the market lately and you have found a mortgage which is lending at 1.75%. That is a difference of 25 basis point and over the long run, will bring down the cost of borrowing dramatically. So, you take the new mortgage from a new lender or using a new product of the same lender. The liquidity you hence obtained is used to pay off the older mortgage. And, your new mortgage’s payment will now be charged at the lower interest rate.
2. You want to shift to a fixed rate from a floating rate:
Fixed rates tend to be charged at a higher percentage and have terms like Early Repayment Charge built into the mortgage contract. Under such rates, you will be paying a fixed interest and might have to pay the ERC if you choose to pay off the loan early. Floating rates are more common and are tracking some financial instrument. With the interest or value of the instrument changing, your interest rate may change. Although most of the instruments tracked under such schemes don’t fluctuate a lot but if you have a good understanding of the rates market, you can switch over to the fixed rate.
3. The value of your house has increased and you want to take some cash out of it:
Assume that you bought a house of GBP 500,000 some years ago and are paying the mortgage on it. Now, the value of your house has increased to GBP 750,000. While the property’s value has increased, there are not many ways to take advantage of this, except Remortgaging. By Remortgaging, you can get a higher debt for the same property. The new amount will cover the lower mortgage principal and interest of your older mortgage and leave you with more cash in hand. You can use this cash for repairing the house and increasing its value even more. While the interest payments may increase since you have a bigger mortgage now, this will also give you more liquidity in hand.
How Can You Get a Remortgage Done?
The process of Remortgaging is not as complex as it may seem from the outset. Here is a simple, step-by-step process:
1. Compare Remortgage Rates:
You should begin with understanding what are the mortgage rates available for your consideration. Generally, bringing a reliable mortgage broker in the process will expedite things for you. Mortgage brokers tend to have a better understanding of the deals and will help you find the best remortgage rates.
2. Property Revaluation:
Once you have selected the remortgage deal that seems to work for you, your new lender will want your house to be revalued. This will help you get a fresh valuation. The amount available under the mortgage terms would be a percentage of this value. Generally, the value comes between 75-90% of the house’s value. This process can take up to 2 months from the date of your mortgage application’s initiation.
3. Compare Remortgage Deals:
While Remortgaging may seem like a manipulation around interest rates, there is much more to them than what meets the eye. You should look into the moratorium period, applicable Early Repayment Charges, processing fee, and the fee of your mortgage broker. The more efficient mortgage brokers tend to help you find best mortgage deals with no fees. Use their services and your cost of borrowing will go further down.