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Remortgaging can be a Financial Salvation in More Ways than One

Overview

A remortgage is a commonly-used term in the United Kingdom that is similar to the term called mortgage refinancing that’s used in the United States. Obtaining remortgages involves paying off one mortgage with the proceeds received from the negotiation and approval of a new mortgage. In essence, homeowners are terminating the original loan and replacing it with an entirely new loan on the same property. Remortgages are typically obtained with new lenders.

A remortgage provides flexibility for homeowners that permit them to make changes in their mortgage terms to suit any changes in their financial conditions. The most common reason for applying for a remortgage is to obtain a more favorable interest rate. If a lower interest rate is obtained, this could reduce the total amount of money a homeowner may pay over the life of the loan. Homeowners could also seek a remortgage to pay off other expenses, reduce their monthly mortgage payments, or to acquire capital for certain projects relating to their home or business such as remodeling, repairs or the purchase of new merchandise.

The Application Process

Applying for remortgages is similar to the process for applying for the initial home loan. Applicants must submit documentation proving total earnings, debts and expenditures, and a full or partial valuation of the property is usually required. Barring complications, this process can be completed in approximately 4 – 6 weeks.

The following are beneficial reasons for seeking remortgages:

• equity can be used to handle emergencies or unforeseen expenses that arise;

• when homeowners are facing financial difficulties, obtaining remortgages to lower their mortgage payments could bring significant relief;

• homeowners can use their equity to consolidate and pay off credit cards or other large expenses; and

• to negotiate the terms of the current loan when the agreed-upon term has come to an end.

It’s important that homeowners choose reputable and knowledgeable lenders to handle their remortgaging needs. While there are many advantages to remortgaging a property, there are also disadvantages that must be considered. Since there are financial consequences to completing this process that could place a substantial burden on the homeowner, it’s best not to enter into this process unless there is an urgent, or at least an important reason for doing so. The lender chosen should be able to inform customers about the costs involved such as origination fees, early redemption or exit fees, or other fees relevant to the completion of this process like appraisal and property search fees, or loan processing fees.

After receiving a remortgage quote, homeowners must weigh the costs verses the benefits before making a final decision. If the sole purpose for the homeowner is to reduce their payments, they should be mindful of the fact that depending on the type of loan, they may reduce their monthly payments but not their principle. This means that after paying on the mortgage for numerous years, the homeowner could end up owing the same amount or more on their balances. Homeowners should be aware of this important fact while seeking the remortgage quote.

Conclusion

It’s always prudent to save rather than spend and given today’s economy, this should be a lesson well learned. The question is, does the homeowner want to put money into their bank account today or do they want to save money for tomorrow? If there’s no real need, it’s highly advisable to resist the temptation to seek a remortgage quote and instead allow the equity to continue to grow.

However, homeowners have an enormous advantage at their fingertips. Their homes give them access to a source of income that can be extremely useful in future times. Therefore, they should be made fully aware of the option to obtain a remortgage quote on their properties and the benefits that can result from this process. They should also be knowledgeable enough to understand exactly what they’re hoping to achieve while comparing the various loan terms that are available. It is only through proper research and understanding, and using qualified and experienced real estate agents, that homeowners will be able to make an informed decision that best suits their circumstances. An important factor is since interest rates currently remain at an all-time low, this could be an excellent time to remortgage a property.