A Remortgage (or a Refinance Mortgage) put simply, is a loan that replaces an existing mortgage. This can be obtained through the existing lender or a different lender, depending upon the best deal for the individual. Remortgages pay off the original mortgage and are used as a means of releasing additional funds. There is some general confusion surrounding Remortgages and it’s relation to Secure Loans, as a part from being a type of secure loan, Remortgages can also be used to do or buy most things. One of the main differences between Remortgages and Secured Loans is that the former can be obtained for any sum of money you require, whereas the latter usually has a maximum restriction of 100,000. Furthermore, secure loans do not change anything about the current obtained regulated mortgage.
Remortgaging is an important financial decision to a homeowner, so understanding the options available is vital. There are various options available for the UK Homeowner. For example, Fixed Rate Remortgages tie you into paying a set interest rate for a specified period of time and allows for effective budgeting with monthly repayments that remain stable throughout the fixed rate period. A Tracker Remortgage is a variable mortgage whose rate is usually tied to The Bank of England base rate, whereas an Offset Remortgage is a deal that allows borrowers to offset the savings that they have against their outstanding mortgage debt. Whilst holding the savings in a separate savings account instead of earning interest on their savings, the borrower will pay a reduced rate of interest on their remortgage. A Bad Credit Remortgage also known as an Adverse Credit Remortgage is available if you have adverse credit history or have been refused credit in the past. There are multiple other forms of remortgages too including Variable Rate Remortgages and Buy-to-Let Remortgages. With such a diverse choice of remortgaging options, it is strongly recommended that you obtain advice in regards to which deal is the best for your circumstances.
With interest rates falling to their lowest over the past 19 months, it is clear that the housing market is the biggest section of the economy to have been affected by the economic downturn. The latest figures from the Council of Mortgage Lenders show that remortgaging fell to its lowest ever level as a proportion of new mortgages in August, with just 25,000 remortgage loans, down 13% on July and 19% lower than a year earlier. With the financial risk to the lender increased during the credit crunch, many bowed out of the housing market, happy to leave homeowners with their current mortgage deals. As lenders removed themselves from the market, banks were left in severe financial trouble and the government was forced to bail them out.
However, as of October 2010, banks are showing significant signs of welcoming back remortgage loans with the number of remortgages jumping a huge 35% in September. As a result, at present, the Remortgage market is one of the most competitive markets with banks and building societies continually slashing interest rates in order to draw in custom. Remortgages now account for more business than properties, emphasising further its recent surge. Among the advantages of remortgaging is how it can help with the consolidation of higher rate debts such as credit cards or car loans. Similar advantages include; remortgaging to take advantage of a lower interest rate, to release equity, to pay for remodelling or expansion of your existing home or to pay for large expenses such as a child’s education or wedding.
There are however some problems/disadvantages and complexities surrounding Remortgages. For example, following the credit crunch, lenders have become increasingly stricter regarding who they lend to and how much they lend. If you are newly self-employed or your employment has recently changed, lenders may be reluctant in lending large amounts of capital as they regard such future income as uncertain. Similarly, if it hasn’t been that long since you obtained your original mortgage and got it at a discounted rate you may face substantial penalties for early repayment. In order to qualify for a remortgage there are various steps to follow; your home must be valued, you must complete a detailed loan application, the lender will require conveyance work to secure a report and a solicitor will be engaged to ensure your previous lender is paid in full and to release any additional funds directly to you. The cost of remortgaging varies depending upon the lender, but in general, it will probably cost less than when you first obtained a mortgage!