‘Remortgaging’ is simply when you either change the type of loan you have, or the mortgage lender, or the terms upon which you borrow. There can be many reasons to do this but here are the three main reasons;
1. To Raise Cash
Sometimes we need access to cash we don’t have. The cash might be needed for a very good cause, such as to pay a private medical procedure or help to send a child to university. Unfortunately, we don’t all have access to large sums of cash and taking out personal loans can be expensive.
Most homeowners would consider their main asset to be their home. However, unless you sell it the cash tied up in your home remains just that - tied up - until you die and it is sold by your estate.
Remortgaging is one way to release cash now and arrange to repay it over a longer period of time, whilst still living in the home. This puts your assets to work for you. Furthermore, borrowing by way of a secured loan on your home is probably the cheapest way to raise cash.
2. To Get a Better Deal
Many mortgages are taken over 25 - 30 years, or more. Early on, the equity in your home is likely to be small but as time passes the erosion of the outstanding debt and the increase in house prices might mean that instead of say 10% equity you find you now have 35% equity.
Remortgaging with 35% LTV (Loan to Value) will almost certainly result in you being able to secure a cheaper interest rate going forward. It’s also possible to restructure your loan so that it is paid over a longer period of time, thus reducing monthly repayments or over a shorter period of time, thus reducing the interest accrued on the loan, should your household income increase and allow you to put more money aside every month.
3. To Lock in a Low Mortgage Interest Rate
We are still living in an era of historically low interest rates. But for how long? A prudent homeowner will always allocate time to review their financial commitments and consider whether locking into a new fixed or capped rate mortgage might not be a sensible option.
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