For homeowners who have already been through getting a mortgage, thinking about a remortgage may seem like a stressful experience. However, it doesn’t have to be. With the right broker or advisor, the entire process of getting a remortgage can become linear.
The question arises – why should you consider a remortgage? Here is every reason why a remortgage stands for good financial planning:
1. It reduces the cost of borrowing for your house.
The primary and most common reason people consider remortgaging their houses is that the market’s interest rates are much better than the ones they are paying on their existing mortgage. There can be a multitude of reasons for this interest rate change – your credit score has dramatically improved, the market is going through an easy-lending cycle, and so on. If you can find a good mortgage broker, you might get the best remortgage deals with no fees, further lowering your cost of borrowing.
If you see the market offering lower interest rates than what you are paying for your mortgage, getting a remortgage would be a wise decision.
2. It gives you liquidity, which can be used for investment purposes.
Most people who have a mortgage on their house don’t imagine the concept of ownership unfold. While you are not allowed to sell the house, it is still your asset. You have borrowed from a lender to acquire the asset. So, if the price of your house goes up, you should consider a remortgage.
Assume that you took out a mortgage when your house was valued at GBP 500k. The lender gave you 70% of the value, and you received GBP 350k for the house. After a few years, you see that the house’s value has gone up by about 20% and comes to GBP 600k. Even if your credit score has not improved, you will get more capital in hand if your remortgage it. This time, 70% on your home would come to GBP 420k. You can use it to pay the older mortgage and keep the difference as available liquidity. You can reinvest it in your house and increase its value even further, or find a trustworthy source to park your capital.
3. It helps you switch from a floating rate to a fixed rate.
When you are getting a mortgage, you may end up with a floating rate. A floating rate allows the lender to hedge its bet and ask for more interest. This might be a result of a higher than usual mortgage amount or a bad credit score or some other risk-management policy for the lender.
However, your risk profile would not remain static in the long run. Eventually, your credit score will improve, and you might be eligible for a fixed rate. In such a scenario, it would make sense to switch to a fixed rate remortgage and bring down the interest rate for the foreseeable tenure. The best remortgage rates often tend to be the ones offered at a fixed rate.
4. It allows you to repay our mortgage earlier than the mortgage contract states.
Some mortgage contracts do not allow for easy early repayment. You may want to overpay your EMI, but if your lender does not allow this h, you wouldn’t be able to take advantage of your improved financial situation. In such situations, a remortgage with a lender who facilitates early payment can help make a smooth transition to a quicker mortgage payment.
You should consistently compare remortgage rates when you get a mortgage loan and even after you have been repaying the mortgage for a few years. More often than not, the best remortgage deals tend to be the ones that took advantage of the changing market dynamics. Find an insurance broker who can help you get a comprehensive hold of the market rates and helps you compare more alternatives.