Prior to 15 years ago almost no one thought to remortgage their home. But when property prices fell in the early 1990s, mortgages grew much more competitive and lenders had to fight over each other’s borrowers just to get new business. Today, remortgages are so prevalent that they constitute 40% or more of all of the new loans generated each month in the UK. Here’s why so many people are opting to remortgage and why you ought to consider it too: It could save you big bucks. If interest rates were high at the time when you took out your loan or if you were given a special deal that has now expired, it’s likely that switching lenders could save you money. There’s also the possibility you could lighten your payment burden each month by extending the loan period. It could help you avoid having to move. Adapting or adding an extension to your existing home, financed by remortgaging or a further advance, could end up being cheaper and less of a hassle than moving. Increasing your mortgage could be cheaper than borrowing separately. Perhaps you need extra money for a wedding, a new kitchen or your child’s education. You could borrow from your existing lender, but if your income or your property’s value has risen then you have the opportunity to increase your mortgage, which is likely to save you money in the long run. It’s a good way to consolidate your debts. If you have multiple debts at high rates of interest, such as credit cards or a car loan, a remortgage will enable you to consolidate these at a lower rate. If you’re wondering how much a remortgage could potentially save you, depending upon your specific situation it could be thousands of pounds in interest payments. Let’s take a typical £120,000 mortgage taken out in November 2005 for instance. At that time the average variable rate loan was approximately 6.25%, which translates to about £800 per month in payments for a 25-year repayment plan. Now plenty of lenders are offering two-year fixed rate deals of 4.5% interest, which would result in £675 monthly payments, a savings of £125 per month or £2,500 over the lifetime of the mortgage. Remortgaging isn’t free, of course, but even so the costs aren’t likely to outweigh the savings. Typically you have to pay a mortgage application fee (approx. £350), a valuation fee (£350), solicitors’ fees (£350) and mortgage termination fees charged by your existing lender (£100-150). This still leaves you with £1,500 in savings over those two years, and your new lender may be even be willing to waive some of those fees. If you have a larger mortgage then you will reap proportionally greater benefits from your remortgage. There are many lenders in the UK offering attractive remortgaging deals. Check out HSBC, firstdirect and Brittania, among others.
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Since the 1990s remortgaging has grown much more popular. Today, many choose to remortgage because it can be a great means of saving money and avoiding having to move, a cheaper way to borrow more and a good way to consolidate debts. There are costs associated with remortgaging but usually the savings outweigh the costs.
Jenny Drake is a full-time economy student, with particular interest in remortgage strategies and planning.
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