Choosing Whether to Remortgage
In today’s economy people are looking to save money wherever possible and the home mortgage is no exception. Monthly payments can go down and the amount owed over the course of the loan can also decrease with a remortgage. The other advantage is the possibility of cashing in the equity in the home for other expenses. Remortgaging can make sound financial sense in a lot of cases. However, there are times remortgaging may not be as sensible. Choosing whether to remortgage or not is a decision that should be carefully weighed before making a decision. There are certain situations where it is beneficial and others where it is not.
You Want to Save Money?
If you own a home you will likely have put some money down and borrowed the remainder of the purchase price. This loan has to be paid out over the course of several years. The loan is comprised of principal and interest. So, after the loan is paid off, the actual total amount you paid is quite significant. If you remortgage for a lower interest rate, you can reduce the amount of money you pay over the course of the loan. If, for example you borrow £200,000 at an 8% interest rate with a 30 year loan you will pay a total of £528,310. However, remortgaging at 4% interest will only be £343,739 over 30 years. You can save a significant amount of money over the course of the loan simply by remortgaging.
In addition, if you have a payment based on a 30 year mortgage at 8% and then reduce the interest rate, your monthly payments will decrease. However, if you can still afford to pay the original payment, the amount you pay over the required amount goes directly to principal. This means that you will pay off your loan earlier and pay even less money over the course of the loan.
Do You Need to Reduce Your Monthly Expenses?
Another reason to remortgage is to reduce your monthly expenses. If you keep your remaining time left on your loan but reduce your interest, your monthly payment will decrease. However, you can decrease your payment even more if you extend the period of your loan. You have to be careful when choosing this, though, because this is not always the best overall financial decision. For example, if you have 15 years left on your original 30 year mortgage and reduce your interest rate, your monthly payment will decrease and your total payments will decrease. But, you can also increase the length of the loan back to 30 years. This will likely significantly reduce the monthly payment. However, it may also increase the total amount you will pay for the home overall. For those who are faced with significantly decreased income, this could be a great answer but for others, it should be done carefully.
Need Home Improvements?
Anyone who has a home understands the high costs of upkeep. Fences need to be repaired, you may need a new roof with time, and interior home improvements may need to be done or upgrades to modernize it. But some of these can be quite costly. Cashing in the equity in your home by remortgaging is one way to get the money to take care of these issues. With the low interest rates you may be able to get a better rate than a home improvement loan. So, you will increase the value of your home and save money at the same time.
High Debt?
When you have accumulated debt due to credit cards the odds are that your credit cards have much greater interest rates than you could get with a remortgage. IN order to become more financially sound you can pay off your credit cards, consolidate your debt and pay off only one debt, your mortgage. You will pay a significantly lower interest rate and will have no additional debt. This may mean that you pay more over the course of time for your home but significantly less overall with all your bills.
Nearing the End of Your Mortgage?
If you are coming close to the end of your existing mortgage and are almost paid off, you may want to carefully examine your need to remortgage. Usually, the benefits do not outweigh the disadvantages. Costs and fees associated with remortgaging will typically be more than any savings and not worth the hassle.
Small Mortgage?
Even if you are not nearing the end of your loan, if your mortgage is not very big, you may find remortgaging not to your benefit. For the same reason as those who are close to paying off their existing mortgage, after the costs and fees associated with remortgaging are paid you will likely not have enough savings to make it worthwhile.
Hefty Penalties?
If your existing mortgage has penalties built in for early pay off you may find that remortgaging, even for a significantly lower interest rate, will not save you any money at all and may even cost you. Between the penalties for early pay off and the fees for remortgaging, your overall costs may actually increase.
Severe Financial Crisis?
If you have a dire financial situation and you think remortgaging will improve the situation, you may want to rethink the tact. If part of the problem is severe credit card debt and you use remortgaging to pay off all your credit cards you may find that you simply have lots of credit cards now with zero balances to charge to again. Some financial problems are just too severe for remortgaging to help and what should happen first is the core issue resolved before considering remortgaging. Remortgaging may be a perfect long term solution but should never be the short term solution. Remortgaging makes a lot of sense in a lot of situations but there are a few where you should be careful. Know what these are and work out the math and you will be able to better determine if remortgaging is the right path for you.