A remortgaging is simply the act of refinancing your existing mortgage to get a better or more suitable deal. It’s also a great way to consolidate your debts or free up cash. Depending on the right offer, you can choose to remortgage either with your current lender or a different one.
The following guide will help you get to grips with both the reasons to make you consider a refinance of your existing mortgage and outline in simple terms the options currently available on the marketplace.
These are the three main reasons why people opt for a remortgage:
Because the mortgage industry is highly competitive, loan providers are constantly releasing new offers to entice customers. These deals could save you a significant amount of money in lower interest rates and other incentives compared to your current mortgage. For this reason, it’s important to keep a vigilant eye on the marketplace so that you don’t miss out.
Equity release is a way of boosting your cash liquidity, whether for home improvements or your dream car. The way this works is when you have positive equity on your property – this is the calculated difference between the worth of your house and your outstanding mortgage balance at its current value. With house prices continuing to rising, you could possibly be sitting on a tidy golden egg. It’s also often cheaper to raise money this way than to take out a personal loan.
A refinance of your existing loan is often a good way to ease the pressure of numerous debts and consolidate into one lump sum through a simplified monthly mortgage payment. You could also very possibly also save a fair amount on interest rates.
Standard Variable Rate (SVR)
This is the standard rate of interest that a lender charges for your remortgage loan. The amount is generally calculated at 1%-2% above the fluctuating Bank of England base rate, meaning it will be subject to ups and downs, sometimes even on a monthly basis.
This remortgage deal gives you a set interest rate that won’t shift with the changes in base rates or your lenders added SVR. You will typically take a fixed interest for a period of 2-5 years.
These types of remortgages are similar to fixed rate deals. Your rate of interest will be calculated according to the loan provider’s standard variable rate, but the difference is that a cap or maximum interest is set applied. What this amounts to is that that your monthly repayments can go up if the lender SVR increases, but not beyond a certain amount.
Capped & Collared Rate
The only difference between this option and the capped rate mortgage is that both your interest rate on your debt and the SVR is capped. This means the rate you pay won’t fall below or above a set level for an agreed term.
This will provide you with a rate of interest that is set slightly above the Bank of England’s base rate, but usually just below your lender’s standard variable rate. Thus if the base rate goes up or down, your tracker rate remortgage payments will move accordingly, even if your loan provider makes no changes to their SVR. This option is therefore similar to a variable rate remortgage.
With this option you will be offered a discount on your lender’s standard variable rate for a set period of time. The discount will usually be would be 2% – 3% below the SVR.
Flexible remortgages enable you to make underpayments, overpayments and even at times take a break altogether from your monthly repayment. They are highly suitable for people who don’t have a fixed monthly salary.
This deal works in the same way as a savings account and is linked to your mortgage account. In other words, instead of earning interest on your savings, the money is used to reduce the balance of your mortgage loan.
Bad Credit Remortgages
This option is designed for those who’ve been refused a mortgage elsewhere due to circumstances that resulted in a poor credit rating.
A long term plan allows you to make your repayments over an extended period of time; which puts less strain on your monthly outgoing expenses. There is a wealth of different remortgages of this type to choose from, allowing you to combine elements of the above options.
Rather than being a remortgage in itself, the cash-back option is a special offer associated with certain types of financing deals. You will receive your cash-back (ranging from a few hundred to several thousand pounds) on completion and acceptance of your remortgage application.
The above guide outlines the main reasons why a remortgage would be a good idea and the types of remortgage choices you will face when shopping around. Most importantly, make sure you compare the different deals available on the marketplace so you can be sure to find the financing that will benefit you best.
Sean Raston is an economics student and expert in the remortgage process.