What is a remortgage?
During the process of paying off your mortgage, it’s likely that you will have a substantial amount of equity tied up in the value of your property. A remortgage is the process of taking out another mortgage on your home. This is either to replace your current mortgage or to borrow money against your property.
Why might you decide to remortgage?
People who choose to remortgage their property, do so in order to:
Remortgaging can help you save money by simply switching your mortgage provider. This is usually done at the end of the contract to avoid any early repayment penalties. Switching providers can often lower your monthly payments and interest rates, allowing you to save the money you have left over at the end of each month.
Many people who are on an initial fixed rate mortgage may find that their interest rate increases after the first couple of years. To avoid payments increasing, remortgaging your home and taking out a new mortgage with a different provider can be a solution to avoiding these cost changes.
Remortgaging can also be used to release equity from your home. This is done by taking out a new mortgage that is larger than your existing mortgage. Remortgaging in this way is often used for consolidating debts, making home improvements or to fund something else. Another option for raising money against your property is by taking out a secured loan.
When remortaging might not be the best option
Remortgaging a property might work well for some but may not be the best option for everyone, especially if:
- Your mortgage debt is small
- Your repayment charge is large
- You have little equity in the property
- Your home’s value has dropped.
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Why Clever Mortgages?
At Clever Mortgages we can offer you the support and advice required to ensure you get the right mortgage for your first home. We provide access to a comprehensive range of mortgages from across the market. We are also authorised and regulated by the Financial Conduct Authority (FCA) and adhere to the Treating Customers Fairly (TCF) guidelines, so you can be confident that we will treat you with integrity and only recommend products that meet your needs.
A fixed rate mortgage is where your interest rate stays the same for a set time period (usually between 2-10 years). As a result your repayments are exactly the same each month, regardless of what happens to other mortgage rates. These types of mortgages are popular with first time buyers and people looking to budget each month, especially those who have suffered from a poor credit history.
The main downside to a fixed rate mortgage is that if mortgage rates go down you can be paying a higher amount than you would on a variable rate mortgage. However, this can also go in your favour and if interest rates increase you can be paying less than you would on a variable rate.
Every lender will have their own standard variable rate (SVR), which is considered their basic mortgage. This interest rate goes up and down, usually in line with the Bank of England’s interest rates but the lender is free to raise this at any time.
This means that your monthly payments can go up or down depending on what the interest rate is at a given time. Some months you could be paying more whilst other months you could be paying much less.
A discount mortgage is when a reduction is applied to the lenders Standard Variable Rate (SVR) for a certain length of time (typically 2-3 years). Discount mortgages are attractive as they can allow you to pay slightly less than the bank's standard rate. However as the SVR can still fluctuate they are not ideal for people who are looking to stick to a strict long term budget.
A tracker mortgage is basically a type of variable rate mortgage. What makes them different from other variable rate mortgages is that they follow – track – movements of another rate, the most common rate that is tracked is the Bank of England Base Rate.
A capped mortgage is the same as a variable rate mortgage; however the interest rate can never rise above a set “cap”. These mortgages can work well for people who can budget for different mortgage repayments each month but want the reassurance that their payments will never go above a certain amount.
Offset mortgages are linked to your savings account. Instead of earning interest on your savings, the money is offset against your mortgage. As a result, you pay less interest on the mortgage debt.
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