What is Remortgage?
Remortgage is often an intimidating topic avoided by many whereas it could prove to be very lucrative for you at a time of need. Remortgage is a term widely used which refers to a process of switching to a new mortgage deal with the same or another lender. A remortgage can also be referred to as the process using the same property to pay off one mortgage with another mortgage for security reasons. Remortgage is widely used in the UK & USA it is known as refinancing. The main purpose of remortgaging is to secure more favorable interest rates.
Pros and Cons of Remortgaging
There are many advantages to remortgage. In the world of business management, it is widely used in the concept of strategic management, meaning that you strategically manage your finances in a way that does not overburden you. You gain the relaxation of choice in what time frame you are likely to pay off.
The Pros of Remortgaging are:
- The ability to borrow more favorable interest rates i.e. lower interest rates
- Your properties’ equity is utilized for additional monetary benefit.
- According to your financial situation, you gain the ability to switch to another property meaning consolidate debts or help you to raise cash for other reasons, such as purchasing an additional property
- They can manage your debts into an affordable monthly payment.
- Free up cash for home improvements
Although there are cons to everything, giving that you have very little relaxation in your financial situation then the pros outweigh the cons. Remortgaging gives you the ability to manage your finances better, especially when you have to send your kids to a university, pay hefty medical fees or pay for your kid’s wedding. Remortgages are a very safe option to manage how you strategize your financial planning.
The Cons of Remortgaging are:
- The time frame for the overall costs increases.
- Your property could be repossessed if you do not comply with the monthly payment.
- The additional fees following a remortgage may unsettle your financial planning.
- The remortgage process takes some time to get processed.
Things You Need to Consider Before Going Through a Process of Remortgage
Remortgage is a great way to cover up some necessary purchases, renovation, wedding planning, or even your child’s education. As mentioned earlier it is flexible to the time frame chosen by you but there are certain aspects that you must consider before applying for a remortgage.
The Value of Your Property
The values of the property fluctuate with time as they rise in certain countries especially in the UK. To determine the value of your property, you can consult with two or three different real estate agents to determine the true value of your property. The advantage of having a high valued property then your loan to value will be very low in the remortgage, a factor that depends on your loan to value (LYV). The lower your LYV the lower will be your interest rate.
Do not think that loyalty will be paid hence when you consider that staying with your current mortgage provider will cost you more. A study concluded that staying with your current lender will cost you 300 pounds more. So, you should do research and find the best deal a lender has to offer you.
As mentioned earlier there are many fees that the lenders put on the table with the deal. This is because the agency’s want to get the reputation of giving away the best deal possible so they impose hefty fees on you so they don’t lose money.
When considering the aspects of switching always do your research especially when two different rates are being offered. For example, your current lender offers you a remortgage of 1.5 percent but another lender offers you a 1.2 percent, then ask yourself is it worth switching the lender and pay the hefty fees? You can save yourself money by switching to another lender because over time you can save up a large amount of money in the time frame of your payment.
When measuring the aspect of getting a low fee over low rates you can lose yourself in questioning what is the best deal you can cut yourself. It is best that you do your research and consults with online options available to quote a price which will save you up a lot of money. Also, you can even consult with a mortgage broker to search the marketplace for you and bring the best deal for you on the table.
How Does the Remortgage Process Work in the UK?
The remortgage process is not as convoluting as it sounds around 10.94 million people in 2019 in the UK mortgage their properties, which is enough fact to convince that many people have gone through this process. Remortgaging in UK takes about 4-8 weeks to process it starts with your lender proposing an online agreement called the Agreement in Principle (AIP). It is a formal term to let you know whether potential lenders are willing to lend you the amount you need, without estimating the exact amount. At this point, you are not required to choose a remortgage deal and there’s no guarantee if the lenders will approve your remortgage deal. AiP is just a process that lets you weigh your options.
All Costs should be Considered
Before committing to a lender, you must determine whether they would charge you one of these fees such as:
- Application fee: A fee that charges you on setting up a new mortgage, it is widely known to be an arrangement, product or booking charges.
- Valuation fee: This determines the true value of your property.
- Solicitor’s fee: A solicitor that will manage the affairs of your transfer.
- Exit fee or early repayment fee: You would need to confirm with your lender if you have to pay these two fees.
Other aspects that must be widely considered during the process are the following. There is certain documentation that is needed for you to collect before apply for this whole process.
Acquiring new Mortgage
Upon acquiring your AiP you can then apply for remortgage which will require all the information needed about your financial and personal background with the details of your current mortgage. Your paperwork must be complete that would include all your property information, the information about your salary and any loans or commitments made before this mortgage.
The most important aspect of being granted a remortgage is when your lender checks all the financial circumstances needed to prove you need this remortgage. Upon completion of the investigation, the lender evaluates the value of your property whilst a solicitor may be provided by your lender free of service to transfer your mortgage. In this process, you may even request the lender the time frame during which the installments will be paid
Completing of Payment
During this phase, you would need to stick to the stringent deadline of paying your dues so that the contract is not violated and your property may not be repossessed.