A remortgage is the act of transferring your loan from one bank to the next or from one type of product to another from one lender. A majority of those who have a mortgage are on the fixed or discounted rate for a certain period that is typically between two and five years. After this time, the current lender will transfer their mortgage to the standard variable rate of the lender (SVR) which will likely be higher than the rate they currently pay.
Benefits of refinancing
Reduce your mortgage monthly payments
If you decide to remortgage your mortgage onto an lower fixed rate or fixed rate, this could decrease your monthly mortgage payment. It is also possible to reduce your current mortgage term to get your mortgage paid off faster.
Get better control over your finances
You can manage your financial situation better by transferring your mortgage into an interest-only rate, and be confident that the mortgage payments will stay the same for several years. A typical fixed rate mortgage of 2 years gives you peace of mind for the long term, without having to be concerned about the fluctuating monthly mortgage payment.
More money to borrow
If you’re looking to make home improvements or other major expenditure coming up, then it is possible to refinance your mortgage in order to get the funds required and also lower the interest rate on your mortgage paying. It is essential to consider first if the remortgaging process is worth it since it could allow you to receive a higher advance on your mortgage that will work out more cost-effective overall.
Consolidate debt
If you’ve fallen into debt using credit card or another short-term loan , and are struggling to pay the debt it is possible to pay off the obligation by remortgaging the property to let some money out. Remortgaging to pay off debt should only considered in an emergency situation since the total amount of interest you be paying over the duration of your mortgage will be more than the amount you pay on the short-term loan. In addition, you’ll have disclose to your lender the reason you are refinancing, which could influence your ability to get an mortgage.
Reduce your LTV for your home mortgage.
The proportion of your mortgage to the value of your property (known as the loan-to-value , or LTV) can affect the rate of interest charged with other terms that are associated with your mortgage, including deposits and fees. In the event that your LTV has decreased as time passes, and your home has grown in value, you could be eligible to receive a higher mortgage rate and terms.
For further remortgage advice Cardiff speak to the team at Oak Financial.
The disadvantages of remortgaging
Eligibility
In the event that you opt to refinance with a different lender, you’ll be considered an applicant who is new and has to complete all the paperwork and checks which are required. If you’ve been self-employed or created an entirely new venture after you started your first mortgage, you’ll need to present two years of accounts or other evidence to show your income. Your spending habits will be scrutinized to ensure that all debts, credit cards or spending that is not necessary will be uncovered during the check process.
Then you can borrow more
If you are borrowing more money for home improvement, then increases in payments can create financial stress, and you might need to reduce other expenses to balance your balance of your books. In the past If you are able to borrow more funds to consolidate debt, then the rate of interest that you pay during the period of your mortgage will be higher than the interest you pay for the short-term debt.
Costs
If you are still with your current lender , you will likely be charged an amount for redemption to close your current loan, however in certain circumstances it is possible to waive this. If you switch to a new lender, there are costs to be incurred when you remortgage your home, for example, a property appraisal as well as an arrangement fee, and also legal fees. It is crucial to ensure that the cost of the remortgage doesn’t exceed any savings you can achieve on your mortgage monthly expenses.
Should I refinance?
How do you find the most suitable mortgage
The best mortgage to suit your needs is one of the main components of a successful financial plan. The market for mortgages is that lenders are looking to increase their rates to attract new customers which is why it’s logical to make the most of this by review your mortgage regularly. It could also be worth applying for a remortgage to free funds for improvements to your home which will increase an increase in the worth of your home.
Things to think about prior to remortgaging
It is recommended that you consider the following questions prior to you refinance:
Do I have to pay a fee for redemption to my current lender in order in order to refinance?
Do I need to borrow more money ? If yes, how much?
Do my financials look in good order, with no outstanding debt or CCJs?
Can I prove my earnings through bank statements or 2 years of accounts?
Have I done some research in order to discover the most suitable remortgage option for my situation?
Have I considered the costs that will be involved and how much I can be able to save?