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Remortgage - A way to replace your high rate mortgage

Posted on: 31st May, 2004 04:49 am
Remortgage is the switching of your mortgage for a better interest rate or suitable terms and conditions. It's a good way to get avoid high variable or fixed rates and take advantage of the prevailing fixed or current rates which are quite lower.

Benefits of Remortgaging:
  • Maximizing your savings:
    You can save a considerable amount of cash by remortgaging when the market rates are lower than that of your mortgage.

  • Reducing the monthly payments:
    You can lower the monthly payments by extending the loan period, that is, switching to a new deal with the same interest rate but a different loan term.

  • Consolidating multiple debts:
    You can transfer all your high interest debts into a home loan a process of consolidating your debts into a single mortgage in order to reduce your total monthly payment on all debts.

  • Getting extra cash:
    The amount offered through a remortgage helps you to release the equity in your home provided the home value is higher than your existing debt. With the extra sum of money, you can carry out repair work in your home as well as go for big purchases.
Potential Pitfalls in Remortgage

Remortgaging no doubt, helps you to save a lot of cash but at the same time you should be aware of the potential pitfalls.
  • Early Repayment Charges:
    It is always better to remortgage after the early repayment charge period is over. Otherwise, you will have to bear the redemption charges for early repayment.

  • Variation in Interest Rates:
    Your lender may not always offer a favorable rate as the standard variable rate keeps on changing with respect to rate changes in the market. So, prior to remortgaging with a new lender, think about the savings or benefits that form a part of your new loan program.

  • Extra payments through Consolidation:
    With a remortgage, you can very well consolidate your debts into a single mortgage and thereby lower your total monthly payment. But in the long run, you may be paying more on the remortgage rather than making separate payments on each debt. This is because personal loans have shorter repayment periods (say, 3 to 5 years) compared to mortgages.
Remortgage Costs:

While you think of remortgaging, consider the costs involved here.
  • Stamp duty:
    Stamp duty includes 1% of the purchase price of the property against which you will remortgage. The purchase price of such properties must not be more than 60, 000 but for properties costing more than 250, 000, the charges will be higher.

  • Mortgage Indemnity Guarantee:
    The mortgage indemnity guarantee is an insurance policy for which you will have to pay the premiums in order to protect the lender in case of any default in mortgage payments. The lender requires you to purchase this policy when you have made less than 10% deposit.

  • Other costs: These include other loan fees like application fee, solicitor's fee, surveyor's valuation fees, charges for redeeming the old mortgage and broker's fee which is equal to 1% of the remortgage amount.

Is remortgaging the best solution for you?

It depends on you as to whether remortgaging is the right option for you. There's nothing better than shifting your standard variable rate mortgage to a fixed rate loan when market rates are on an upward trend. But changing the loan term often seems to a better idea rather than modifying the interest rate. In doing so, your current monthly payments are reduced but you end up paying much more interest for the entire loan term.

You may think of saving through a lowered interest rate. But this may be balanced by the transaction charges including early repayment charges and others demanded by your new lender as well as the old lender. Therefore, the best thing is to calculate the entire costs so that you don't finish up losing several months of interest to the actual benefits of remortgaging.

Related Articles:

Related Forum Discussion:
my mortgage is payed for this time next year, my house is most light worth 375000 pound i would like to raise 30000 pounds
Posted on: 03rd Aug, 2005 01:48 pm
Hi Learners
Welcome to the forums.

You have not specified the amount that is payable by next year. Anyway there are two options by which you can raise cash from your home equity. You can refinance the original mortgage with a new mortgage loan, that is, you go for cash-out refinancing which will help you to borrow more than the unpaid loan balance.

Another option is to take a remortgage and pay off the first mortgage by next year. A remortgage often helps to raise cash greater than the previous mortgage amount.

You should talk to lenders regarding the loan amount you will be approved for, so that you can raise the cash you require.

Hope this information will be helpful to you.

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Posted on: 03rd Aug, 2005 09:55 pm
There are several factors that help to determine how much you can borrow. These include:
  • Monthly Repayment
  • Monthly Income
  • Home equity Value
Depending on the factors, you can borrow an amount from 1,000 pounds to a maximum of 500,000 pounds.
Posted on: 01st Dec, 2005 12:39 am
Hi helping user,

Good information on your part. Why don't you join the community as an active user and help the community grow?

We would like you very much as an active user.

Posted on: 01st Dec, 2005 10:29 am
We remortgaged last September at a rate of 5.69 for 5 years. We have quite high repayment charges. Is it worth my looking around for a better deal or are we always going to be out of pocket because of all the costs (repayment charges, remortgaging fees etc)?
Posted on: 09th Feb, 2009 08:39 am
Hi Bluetoo,

In order to refinance the mortgage, you will have to wait for at least a year. Before that I don't think lenders will agree to refinance the property. Once you refinance the property, you will have pay the closing costs once again.

Posted on: 13th Feb, 2009 02:00 am
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