Remortgages: The Helps and Hazards

Understanding Remortgaging

When you remortgage your home, you essentially replace your existing mortgage with a new one, often to take advantage of lower interest rates. This is a common strategy for homeowners with fixed-rate mortgages, especially when market rates have dropped since the original loan was taken out.

Benefits of Remortgaging

1. Lower Monthly Payments

- By extending the term of your mortgage, you can reduce your monthly payments. For example, if you have 15 years remaining on a 30-year mortgage and have paid off a portion of it, you might extend the term back out to 30 years on the remaining balance. This can significantly decrease your monthly payments.

2. Reduce the Cost of the Home

- While you won’t lower the principal amount owed, you can reduce the total interest paid over the life of the loan by securing a lower interest rate. This means you'll pay less in interest, saving money overall.

3. Consolidate Outstanding Debts

- Remortgaging can also be used to consolidate higher-interest debts like credit card balances or car loans into your mortgage. Although this can increase your mortgage payments, it can lead to overall savings by reducing the interest rates on the consolidated debts.

Considerations Before Remortgaging

1. Interest Rate Fluctuations

- Interest rates can change, and what seems like a good rate now might become less favourable in the near future. Keep an eye on interest rate trends and consider consulting a financial advisor to make an informed decision.

2. Remortgaging Costs

- Remortgaging involves costs such as application fees, appraisal fees, and potential early repayment penalties on your existing mortgage. It’s important to assess these costs and determine if the benefits outweigh the expenses.

3. Extended Debt Period

- Consolidating debts into your mortgage could extend your repayment period, which may increase the total amount of interest paid. For instance, a loan that was originally set to be paid off in 3 years could end up being paid off over 30 years if included in a mortgage, resulting in more interest over time.

Making the Decision

Remortgaging can be a powerful tool for managing your finances, especially if you’re looking to reduce monthly payments or consolidate debts. However, it’s essential to weigh the pros and cons carefully. Consider the potential for increased total interest costs and additional fees. An informed decision will help you achieve your financial goals while minimizing costs and maximizing savings.

Good luck, and happy remortgaging!