If you are struggling to keep up with mortgage payments, or just feel you are paying over the odds on your home loan, then re-mortgaging may be the answer. It can give you lower monthly payments and even save you money in the long-term so there is little to be lost from at least exploring the possibility. But once you have decided to re-mortgage, where do you start?
The first thing to do is to check the terms and conditions of your existing mortgage. This will tell if you are tied in to your deal and it there are any redemption penalties or early repayment charges. This will give you an idea of how much it will cost to re-mortgage, and whether it will be worth if for you to do so. If you are locked in to your current deal, it becomes a case of working out whether you will save money by switching to a different rate, or whether you are better served by staying put until the penalties expire. Do not forget that a new lender will value your house and then charge an arrangement fee on top which can cost more than ?1,000.
If you have been with your existing lender for a long time then doing this research is often particularly worthwhile. Long-term loyalty to a lender is not often rewarded with a reduction in rates, and shopping around may well save you money.
Of course re-mortgaging is not only about saving money on your existing deal, and can be an economical way of borrowing money. Equity ? the value of your home minus the value of outstanding mortgage payments ? is your money, and many lenders will let you borrow against it. Releasing equity is often cheaper than taking out a personal loan but it is nevertheless important to be careful.
Though borrowing through your mortgage in this way may be cheaper than taking out a loan, the debt you incur will be secured on your home. If you are unable to keep up with these additional payments you could wind up losing your home, so this option needs careful consideration ? especially if you are already struggling to meet demands.
As with all financial products, there are a million deals out there, all accompanied by a bewildering stream of small print. Before you sign a contract you should be presented with a key facts document which outlines all the mortgage charges and small print in plain English. Always go through it carefully, and never be afraid to ask your broker to explain exactly what all of it means
You can also help yourself by avoiding deals with extended redemption penalties. These were being phased out until recently, when a number of lenders reintroduced extended penalties to counter ?rate tarts? who chop and change between providers to get a better deal. Getting trapped by these extended deals will prevent you from re-mortgaging again in the future, and as this whole process has shown, there often better deal to be found elsewhere. Extended redemption penalties are often hidden in the small print of contracts so make sure you check carefully. As with anything else you are not sure about - ask.
There are many reasons as to why you should consider a re-mortgage. You may be overwhelmed with the great number of advertisements in recent times, all prompting you to re-mortgage your home. Ultimately, the decision to re-mortgage depends on your own financial status, and your financial plan. Here are some common reasons why homeowners decide to apply for a re-mortgage.
1) Lower mortgage payments.
You may have a change of jobs recently and your salary is not as much as before. Or your business is suffering due to the current economic downturn. As a result, you find that cash flow has been tight, and you may no longer be able to afford your current mortgage payments. In this case, you can apply for a re-mortgage to lower your mortgage payments. Of course, your payment period may be longer, and you may be required to pay more interest in the long run. But at least you get to keep your home.
2) Shorten the length of the mortgage.
This is the opposite of the first scenario. You now find yourself in a much better financial position, and would like to pay off as much of your mortgage loan as possible. Homeowners sometimes do that so that they can save on paying hefty interest on their current mortgage loans. Shortening the length of the mortgage usually means higher monthly payments.
3) Exchange home equity for cash.
This is a very common reason. You have been paying mortgage payments for years now, and there is equity available. For cash flow reasons, you may wish to exchange part of the equity for a lump sum. The sum of money can be used for business or for a family emergency.
4) Retirement purposes.
You have decided to go into full or semi-retirement. Releasing equity from your mortgage can help fund your retirement. You can start a side business with your funds, work less hours per day, and enjoy more leisure time.
5) Invest in a second home.
Perhaps the time is right for investing in a second home. In order to pay for the down payment, you need a lump sum of money. Releasing equity is one such option. The cash can be used to buy another property for investment purposes, or for retirement purposes.
The whole idea of re-mortgage is to release equity for cash, or to reduce the interest payable. Your decision to go for a re-mortgage depends on how you are going to use the re-mortgage to advance your own interest. Different people have different needs. Some may need the money to pay off credit card debts, while others just want a second property by the seaside for leisure purposes. Whatever your reason, always speak to a professional re-mortgage advisor to find out more about more re-mortgages can help you.
Both Robert. Wood & Gen Wright are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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