Remortgaging your home can be a smart financial decision, but only if you do it for the right reasons. There are a number of situations where remortgaging can be a smart decision, but there are also other circumstances when remortgaging isn’t the best bet.
So how do you know when it is right for you? Let’s take a look at some of the good reasons to remortgage your home and some of the reasons that might not be so advantageous.
Here are some of the good and bad reasons to consider remortgaging:
Good Reasons to Remortgage
You Can Take Advantage of a Better Deal
If you can use the opportunity to change your lender and take advantage of a better mortgage deal, remortgaging can save you a lot of money. You will be able to save more money over time by having a lower interest rate. It is crucial to make such that there are no early repayment charges or fees you need to know about – although sometimes the switch can save you so much that it cancels these out. Before you make the decision, take the time to compare all of your possibilities so that you can find the right option for you.
You Can Get More Flexibility
Perhaps you have a mortgage arrangement that doesn’t offer you a lot of flexibility and charges you a penalty when you overpay. This can be frustrating, especially when you want to get your mortgage paid down faster. If you want to have more flexibility and be able to pay more, it can be worth it to remortgage with a lender who offers this option. There are some cheap mortgages available out there that will allow you to overpay up to 20% per year and some that will offer unlimited overpayments.
You Want to Complete a Renovation Project
Sometimes remortgaging can be a great way to access funds for a major home renovation. Improving on your home can greatly increase its value, which means that it will be worth the investment. If you are interested in remortgaging your home to finance your renovation, talk to your lender about the possibilities so that you can choose the most cost effective way of doing this.
Bad Reasons to Remortgage
Although it might be tempting to remortgage so that you can consolidate your debt and pay off your high interest loans with a low-interest mortgage – there are some risks to this decision. Credit card debt is unsecured, but a mortgage is debt that uses your home as collateral. The plan will work as long as you pay everything off, but if for some reason you can’t make your loan payments you could potentially lose your home. This is a major risk to take, so it shouldn’t be taken lightly.
Switching to a Longer Term
Some people choose to remortgage so that they can switch from a 10 year loan to a 30 year loan, reducing their monthly payments. However, when you stretch out your mortgage for this much longer, you will pay so much more in interest over the years. Make sure that you are considering the overall cost of the loan as well as the monthly payments when you are making this decision, so that you won’t regret the choice several years down the line.
Falling for a “No Cost” Refinance Promise
Although they are advertised that way, there is no such thing as a no-cost mortgage. The closing costs and fees that are associated with remortgaging will be paid one way or another, whether they are hidden or included in the cost of the loan. If you plan to remortgage, make sure that it makes sense for you and that you are not just being lured by sales promises.
Many people remortgage their home, for both good and bad reasons – these are just a few of the common motivations behind the decision. If you are considering it, think about the reasons behind the decision so that you can determine whether it will be the most profitable and advantageous financial move for you at this stage of your life.
About the Author: Alice Higgins is a homeowner in the UK and a finance blogger. She writes about helpful tips for finding a mortgage, investing and making the most of your savings on a number of finance related blogs and publications.