RemortgagesPosted on September 2nd, 2010 William No comments
Remortgaging is similar to refinancing, and the two terms are often confused; it is effectively the transfer of your mortgage from one lender to another. The term remortgaging is mostly used in the UK; elsewhere it is primarily known as switching. The term applies only when the homeowner is switching to a different lender, not when switching to a different product with the same lender. The new lender pays off the existing mortgage, leaving the borrower with a new mortgage (hopefully at a lower rate).
Aside from lowering the interest rate and monthly payments, remortgages are also used to release equity in the borrow's home; in other words, the second mortgage is taken out for an amount in excess of that currently owed on the first mortgage, with the buyer pocketing the difference. The nice thing about remortgages is that the new mortgage replaces the old one, so the buyer never has two mortgages at the same time. This is also useful for people who have paid off their home and are looking to buy a second one, as they can remortgage the first home without having to go through the full process of being approved for the loan that would be required to buy the second home. For investors, it can be even more useful, as interest rates on mortgages for investment homes tend to be higher than those in which the buyer plans to live; this is a way around that.
Sometimes remortgages are also used in place of home improvement loans, due to the lower interest rate. Ideally, the improvements will increase the value of the home enough to pay for themselves! Others use remortgages to consolidate debt, lowering their interest rates. For someone with poor credit and high interest rates, a bad credit remortgage can be the best way to get their head above water. This requires caution, however; going from unsecured debt such as credit cards to a loan against your home is always dangerous, because your house is now on the line if you're not able to pay your bills.
Older people may also face discrimination in applying for a new mortgage, as their age may cause the lender to doubt whether they will live long enough to pay off a new loan; remortgages can be a way around that, as the requirements are less stringent.
If considering a remortgage, be sure to start by checking whether your current mortgage has an early redemption fee; if so, you may lose out on the benefits you'd gain from the remortgage. As with all financial products, but real estate in particular, it always pays to read the fine print!
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