What Is Remortgaging?
Most people know what a mortgage is. For those that don't, it is a type of loan product. But unlike most loans, it is typically for a large amount, and over a large period of time.
The average mortgage is for a period of 25 years - quite some time! And of course there are various types of mortgage such as repayment and interest only mortgage.
So, that's what a mortgage is. And from the name remortgage, you can work out it is something to do with the mortgage process, but what exactly?
Well, remortgaging is a process for someone who already has a mortgage on their house - not for people looking for their first mortgage.
So why would someone who already has a mortgage want to REmortgage - change and get a different mortgage? It could be for various reasons: typically they include getting to the end of your current mortgage arrangement, or thinking that it is no longer the right one, or that you can get better value by remortgaging.
The number one reason that people consider remortgaging is not surprising - it is in order to save money, by getting a more attractive deal for themselves, for instance a lower interest rate to the deal that they are currently on.
Of course, most people's largest financial commitment that they ever make is the mortgage. After a car that might cost, say, £20,000 or so, most people never spend more than that in one transaction other than a house, that in the current market could easily cost over £1,000,000 depending where you buy.
And so a mortgage is the biggest loan you take out - and as you will know if you have used our mortgage calculator (in the property tools section) then you will know that you end up paying back a lot more than the cost of the mortgage due to the compound interest effect. All of which means that there are potentially thousands, if not more, to be saved by remortgaging, if the circumstances are right and you get the right deal. Because it is important to remember that remortgaging is not right for everyone, and for a whole range of reasons.
Those who might consider remortgaging are often those who are at the end of a current (good) deal, that is going to revert to a higher rate when the deal ends: typically an introductory rate that is better than you are moved onto the standard variable rate, called the SVR.
Others might just think they want a better rate. However, it will be important to check what the cost of leaving an existing deal is, if it is not one that is about to end. There can be high early repayment fees with some mortgages, and also an exit fee, too.
So there are various reasons why people want to remortgage, and predominantly to save money - though they could be about adding flexibility such as payment holidays, so it's not always financial.
As mentioned, it is not always suitable for people to remortgage anyway. Each case needs to be considered on its own merits, but if the charges to repay early are too large to offset any saving for instance then it financially may not be a good idea. Or if your financial position has worsened since you took out the mortgage, potentially weakening your position to get a better mortgage elsewhere.
Hopefully having read this you should be aware of what remortgaging is, and what motivates some people to want to remortgage. Of course, there is considerable detail to consider when actually thinking about remortgaging, beyond the scope of this article.
More first-time house buying articles:
- Types of Property Ownership in the UK
- What is a Buy To Let Mortgage?
- What is a Home Report?
- What is a Mortgage in Principle?
- The Key Purpose of a Second Viewing