If you own a home with a mortgage, you may be planning to renovate, resize, or make any other changes to increase your home’s value. In this case, a remortgage may be an option.  

Remortgaging or home refinancing switches your current mortgage to a new one with a different lender. It can also mean renegotiating the terms of your current mortgage with your existing lender.  

There are several reasons why homeowners might consider remortgaging, such as debt consolidation, equity release, and mortgage restructuring. Whatever your reason, this helpful guide on remortgaging will provide valuable insights and considerations to assist you in determining whether remortgaging is the right decision for your unique financial situation.  

Pros Of Remortgaging Your Home

Various advantages come with remortgaging your home and there are many options including unencumbered mortgage when you do it for the right reasons and at the right time. These advantages include the following:

One of the most significant benefits of remortgage is that it can help reduce your monthly repayments. You could save money in the long run by switching to a mortgage with a lower interest rate.  

Remortgaging your home can also help you access the equity in your home. This could be useful if you fund home improvements or pay for other significant expenses. Equity refers to the portion of your home’s value that exceeds the outstanding amount of your mortgage that’s secured against it.

You can access the remaining money tied up in your home by selling it and repaying your mortgage, allowing you to utilize the equity to purchase your next property. Alternatively, you can release equity through remortgaging, enabling you to access the funds without selling your home or relocating.

If you have multiple debts, such as credit card balances or personal loans, remortgaging could be a way to consolidate them into a single monthly payment. By borrowing more money than the outstanding mortgage balance, you can use the additional funds to pay off other debts. This can make it easier to manage your debts and reduce your overall interest payments.

Remortgaging allows you to switch from a variable to a fixed interest rate or vice versa. A fixed-rate mortgage can offer more stability as your monthly repayments will stay the same for a fixed period. A variable-rate mortgage can provide more flexibility and lower interest rates. Particularly, the interest rate is typically tied to a benchmark rate. When the benchmark rate changes, the interest rate on the mortgage can change as well.

Cons Of Remortgaging Your Home

While remortgaging can have many potential benefits, there are also some drawbacks and risks that homeowners should be aware of. Here are some of the cons of remortgaging your home:

Remortgaging can be costly as it involves various expenses and closing costs associated with obtaining a new mortgage. These expenses may include an appraisal, title search, and loan origination fees, which can accumulate quickly. Additionally, when you remortgage, you usually have to pay charges, such as valuation, arrangement, and legal fees.  

Hence, before considering a remortgage, it’s crucial to account for these costs and factor them into your decision-making process to ensure its financial viability for you in the long run. These expenses can add up quickly and may outweigh your savings from lower monthly repayments.

If you remortgage before your current mortgage deal ends, you may have to pay an early repayment charge to your existing lender. This can be a high cost and should be factored into your decision to remortgage.

Remortgaging to release equity from your home or consolidate debt can result in you owing more money overall. This means you’ll repay your mortgage longer, which could mean paying more interest in the long run.

Remortgaging can impact your credit score, as it involves a hard credit check, temporarily lowering your credit score. Also, missing any payments or defaulting on your new mortgage can harm your credit score.

Furthermore, opting for a remortgage with a different lender means you’ll be treated as a new customer, necessitating the completion of all required checks and documentation. Suppose you’ve become self-employed or established a new business since obtaining your original mortgage. You must present at least two years’ worth of accounts or other documentation to demonstrate your income. Additionally, your present expenditures will be scrutinized, exposing any outstanding loans, credit cards, or extra spending during the assessment procedure.

Conclusion

Remortgaging your home can be a valuable financial tool for reducing monthly repayments, accessing equity, and consolidating debts. However, weighing the pros and cons carefully before deciding is essential. Be sure to consider additional charges, early repayment charges, potential negative impacts on your credit score, and the overall cost of borrowing. By doing so, you can make an informed decision that will benefit your financial situation.