A remortgage or refinancing is when a mortgage borrower pays off an existing mortgage loan with a new mortgage from a different lender. Remortgaging has become popular during recessionary periods because of lower interests rates offered by lenders. Lenders borrow money from the FED, and when that interest rate is low, consumers are offered lower interest rate loans. The reason for this is to increase investment, and it is a great way to save money on high interest rate mortgage loans, but it is not for everyone.
Who Should Remortgage?
To remortgage, the borrower must pay a premium to the remortgaging company in order to secure the new loan. Anyone who owes a considerable amount on his or her mortgage loan with a high interest rate should consider a remortgage. However, be sure to do a cost benefit analysis to determine if the savings outweigh the fees associated with a remortgage. Because every loan company is different, it is important to compare fees with multiple companies.
Fees are unfortunately associated with any remortgage. When it comes to the amount, it either will be a fixed rate, or will vary depending on the amount of the loan. However, the fees may be worth the remortgage because, for instance, if interest rates are 6% lower, it may save you thousands in the end.
If you have an ARM or adjustable rate mortgage, then a remortgage would be very beneficial. Although interests’ rate may be low now, when the economy picks up, interest rates will skyrocket. Remortgaging to a fixed rate could save you a lot of money down the road, even if not in the short term.
Are You Overpaying?
If you received, a mortgage to purchase a home during a bull market you may have had to pay a premium in order to receive the loan. However, with interest rates dropping, you could refinance and receive a much lower rate. When the FED interest rate is low to lenders, consumers will get the best possible deals.
Paying Off Debt
If your original loan was for $200,000, and the current value of your home is now $300,000, you can remortgage to account for the difference. This leaves you with capital to pay off higher interest debt, such as credit card or student loan debt. The biggest concern with this is that you will eventually have to pay the difference, which can be costly long-term, but could be beneficial in the short-term. Always do your homework and make sure that refinancing in order to pay a higher interest loan is in your best financial interest, if not you could be putting yourself in more debt.