Reasons for Remortgaging
Today more people are considering remortgaging. It is a quite popular solution especially for those who have had their home for several years. However, not everyone should choose remortgaging as a solution. Anyone who is in dire financial straits may want to consider other options and get assistance to get their finances in order before remortgaging. If not, they may find that they are in worse shape. There are also fees and potential penalties that may need to be paid prior to remortgaging that needs to be taken into consideration. Make sure to calculate all the costs before committing to it and make sure you understand exactly what you are getting into. While there are some situations where remortgaging can be detrimental, the vast majority of people will find that remortgaging is highly advantageous.
Pay Off Your Mortgage Faster
Your home is probably your most expensive debt you will ever have. But it will also like be your most valuable asset. You can own that asset outright a lot faster if you consider remortgaging. Remortgaging is a means by which you change your lending institution as well as your loan terms. For most, this means a favourable change in terms but this can be realized in many different ways. One of these ways is by reducing the time that you have to pay off your loan. A mortgage consists of principal which is the amount you originally borrowed for your home. For example, if your home cost £300,000 but you had a down payment of £50,000 you took out your mortgage for £250,000. It also consists of interest.
Interest is based on a percentage. Currently interest rates are fairly low. However, a few years ago they were not. Principal and interest is combined and amortized over the length of the loan and the total amount you will pay back will be the combination of both. On a £250,000 mortgage over thirty years at 8% interest you will actually spend over £660,000. Your monthly payments will be around £1,800. However, if you can now decrease the interest rate and continue to pay the amount you are used to paying, you can conceivably cut your pay off time in half. At the very least you can reduce the amount of the loan several years. You can do this by paying more than the monthly required amount with the excess going straight to principal or you can simply reduce the term of the loan.
Reduce Your Monthly Payment
For some people, especially in today’s economy, there may be a sudden reduction in income. Perhaps hours were cut, there was a lay off, retirement or even illness. Whatever the reason if you are faced with a sudden decrease in income you may find it difficult and even impossible for you to continue paying the monthly expenses on time. Significantly reducing the cost of even one bill can mean the difference between struggling each month and living comfortably and worry-free. Remortgaging can accomplish this goal immediately. If you have a high interest rate loan you can reduce the interest, leave the loan at the same time frame for pay off and your bills will reduce significantly each month.
But, there is a way to reduce the monthly mortgage payment even more. You can also extend your mortgage term. For example, if you have a 15 year mortgage or 15 years left to pay it off you can remortgage at a lower interest rate plus extend the loan to a thirty year mortgage. This may cause you to pay more money in total when the loan is completely paid off but it also may solve your financial problems. While you will pay more over the course of the loan because you are taking longer to pay it off, if you find that your income increases you can always pay more each month. That amount goes directly to principal and will cut the time to pay off the loan.
For anyone who is in a temporary financial strain, this can be a great solution. You have the flexibility of paying a smaller amount, maintaining both your home and your good credit or paying more and reducing how long it will take to pay off the mortgage loan. Remortgaging can make a lot of sense for those who need a little extra assistance reducing their monthly expenses.
Get Some Extra Cash
Many people choose remortgaging as an option to get some additional cash in hand. This option is generally only available to those who have some equity built up in their home, though. For example, if you purchased your home for £200,000, put £50,000 down and paid on it for several years to where you only owe £100,000, you may be able to get some additional cash depending on the value of the home. Assuming that the value of your property has increased over time, you can conceivably get a loan up to the value of the home. The remortgage will pay off your existing loan first and any additional will go directly to you.
Some lending institutions, however, will only remortgage a certain percentage of your home value. 80% is the going rate right now in the UK. So, if your home is now valued at £250,000 you could only get a loan for £200,000 (80% of £250,000). If you only owe £100,000 on your mortgage and take out the full amount, you will repay £200,000, £100,000 will repay your existing mortgage and you will receive a cheque for £100,000.
You can do whatever you wish with the extra money. However, the most popular means of using it is to put it directly back into the house. Many people use it for home improvements and renovations. Other options are to use it for debt consolidation. If you have credit debt with higher interest rates, you can pay it all off and be ahead of the game by paying one sum with significantly lower interest. Still others choose to use it for a fun holiday or other purpose. Whatever you use it for, though, remortgaging can allow you to get extra cash that is repaid at a fairly low interest rate.
But, there is a way to reduce the monthly