Remortgage
A remortgage replaces an existing mortgage loan with a new loan from a different lender. It is similar to a refinance,
although a refinance could also be through the current lender and a remortgage is only through a new lender. Let’s discuss remortgages.
There are many reasons a borrower might consider remortgaging their home. Lower rates, reduced payments, and accessing the equity in your home are some of them.
A remortgage is not for everyone, so make sure you do your homework before taking this step. A remortgage calculator could help you to determine which remortgage deals would be right for you. In general, the first thing to check out is the interest rate on the new loan. The interest rate on the remortgage should be at least 1% lower than your current mortgage rate.
You should also take into account how long you plan on staying in that house. If you plan to live there forever (or even for at least a few years), then you are fine, but if you hope to sell the home and move in a year or two, the extra closing costs rolled into the loan, as well as possible early payment penalties on the existing loan may not be worth it. It can generally take two to three years before you break even with a new loan.
Another thing to think about when looking for the best remortgage deals is whether the lender offers a fixed rate mortgage or an adjustable rate mortgage, and choose the one that is right for you.
Remortgages often help you to get lower payments, either as a function of the interest rate or by allowing you to take your remaining balance and stretch it out again to 30 years. For instance, if your first mortgage was for 30 years and you have paid on it for 7 years, a 30 year remortgage would reduce your monthly payments, while extending the length of the loan.
Another option, especially with a new lower interest rate, would be to shorten the time of repayment to 20 or 15 years. That way, you could pay off the remortgage more quickly than you would have paid off the original mortgage, which would save you thousands of dollars in interest. Your payments may be higher than your current payments if you use this option, but the loan will be paid off faster. Make sure to use a remortgage calculator to carefully calculate this using the exact interest rates and costs of the loan you are looking at to make sure you get the best remortgage deals.
Accessing your equity is another good reason to remortgage your home. Equity is the difference between the market value of a home and the amount the borrower still owes on it. If you have lived in your home for a long time, you will have earned more equity. Doing a remortgage will allow you to obtain some of that money for whatever purpose you want, whether it is updating your paint and carpet, going on a well-earned vacation, or putting a child through college.
Remortgages can be an excellent way to help you get to a better financial plane.
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