Why Should I Remortgage?
The Pros and Cons of Remortgaging Your Home
What is a Remortgage?
Most people, especially younger people, don't own their home outright but took out a mortgage to pay for it. Repayments on your mortgage are likely to account for a large proportion of your monthly budget, and so it's important to make sure you're getting a good deal.
A remortgage basically involves taking out a new mortgage with a different provider, and using it to pay off your current mortgage, which you might consider doing for a variety of reasons.
Reasons to Remortgage
Remortgaging can make sound financial sense for some people, especially in the following circumstances.
Lower Repayments
Your current mortgage may not be the most competitive on the market, and by switching to a mortgage package with a lower interest rate you could save a considerable amount in lower monthly repayments. Indeed, it's been estimated that Britons are paying up to £5bn a year too much in unnecessarily high repayments.
Also, many mortgage deals will offer an introductory deal, where you get a discounted rate at the start of your repayments. If this period is coming to an end, you may be able to avoid higher rates by switching to a new mortgage with a new introductory deal.
Release Equity
With the strong rise in property prices in recent years, many people have substantial amounts of equity in their home - i.e. their house is worth a lot more than their outstanding mortgage.
In these cases, you could take out a new mortgage for a higher amount, pay off your existing mortgage, and have still have money spare to pay off other debts, pay for home improvements, or anything else you need a sum of money for.
Fix Your Rate
Some mortgages offer a fixed rate for a period, which guarantees that the level of interest charged will not change during that time. As interest rates are still at historically low levels, despite recent rises, you may wish to 'lock in' these rates to your mortgage by taking out a long-term fixed rate mortgage.
This will benefit you if interest rates rise over the period of the fixed rate, as the rises won't effect your repayments.
However, should rates drop, you won't benefit from lower repayments either - so, a fixed rate mortgage is in some respects a gamble which will pay off in the event of rates rising.
Offset Mortgages
A relatively new form of mortgage is known as an Offset Mortgage. These mortgages allow you to reduce your interest payments by offsetting any savings or current account balances against your overall debt. They also usually feature other flexible options like overpayments, underpayments, or payment holidays.
If this kind of mortgage is attractive to you, it may be worth considering a remortgage.
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