As a real estate paralegal, I never heard the term “remortgage” until recently while working with bankruptcy. I wondered if a new type of financing had been created due to the slow housing market or possibly due to the recession. A little research revealed what I thought was the answer–a simple case of two words being used to describe the same event.
A remortgage is the term used more commonly in Britain to describe what we call a refinance in the United States. A remortgage and a refinance refer to a homeowner obtaining a new loan secured by their real property to pay off the balance on their existing mortgage. A refinance can be with the same mortgage lender or with a different mortgage lender. A remortgage is often used to refer to financing through a different lender; however, the term is not used very often in the United States.
Whether you use the term remortgage or refinance, the result is the same in both cases – – you have a new loan (with either the same lender or a new lender) that pays in full your existing mortgage loan. The reasons for obtaining a remortgage can vary but typically include the following:
1. To lower the interest rate – Many homeowners seek a remortgage to lower their current interest rate. By lowering the interest rate, they can lower their monthly payments or decrease the term of the loan to pay off the mortgage faster.
2. Lower the monthly payments – In a difficult economy, some homeowners will seek to remortgage their existing loan to extend the terms of the loan. By extending the length of the mortgage, they can lower their monthly payments to a more manageable figure.
3. Withdraw existing equity – As a homeowner pays their mortgage down each month, they build equity in their home. By remortgaging, a homeowner can borrow more money than is necessary to pay the existing mortgage in full to tap into the equity in their home for other uses.
4. Lock in an adjustable rate mortgage – Adjustable rate mortgages (ARMs) were extremely popular during the 90s; however, with interest rates low homeowners can remortgage to lock in a lower interest rate. When you remortgage, you may also want to consider purchasing points to lower that interest rate even more.
5. Avoid a balloon payment – Mortgages with balloon payments may be advantageous to lower mortgage payments or get a better interest rate; however, they become due faster than anticipated. Using a remortgage to pay off the balloon note is a smart way to lengthen the terms of the mortgage while taking advantage of the features of a balloon note.