Thinking of doing a second mortgage?

A remortgage is the transfer of cancelled or ended mortgage deals from one lender to another. The provider of the original loan is paid by the new lender, which leaves the borrower with one existing mortgage loan, which must be repaid to the new loan lender.

Remortgage must not be confused with the term refinance. While they can be similar in one aspect, they have a major difference. Refinancing a loan can be done with an existing lender or it can be a deal with a new mortgage provider. A remortgage can only involve a new lender (e.g. HSBC, Abbey, etc.)

Main reasons to take out another home loan

There are various reasons why borrowers consider moving their existing loans to a new mortgages provider. Here are some of the reasons:

• Saving money is the number one reason to remortgage. This is possible because borrowers can get better interest rates when they secure a new deal. The lower rate can reduce monthly repayments, and it can even cut the overall sum of money that must be repaid over the loan’s full life. This can be easily verified using a mortgage calculator.
• Remortgaging can be a way to release equity in a property. This is a good move when the value of the property has increased, as the borrower can withhold a portion of the cash through remortgaging.
• Adding property values can be done through home improvements, especially building extensions. A borrower can remortgage to reinvest into the original mortgage.
• If mortgage rates are predicted to rise over the next couple of years, it would be beneficial for a borrower to secure a new deal with a fixed rate. Variable rates tend to be more costly in the long run.
• Another purpose of remortgaging is to get a better deal. This is especially good for borrowers who have been offered a highly expensive deal due to for example a bad credit file. Remortgaging for a fairer and better deal is one great option, once a borrower’s financial status has been improved.

Advice and what to keep in mind

It must be noted that remortgaging is signing an entirely new mortgage contract. By this fact, it means a borrower will have another set of options to make a comparison, such as the length of the loan, loan rates, and the opportunity to withdraw any built-up equity from an increase in property value.

Here are some other points to bear in mind and advice when it comes to investigating remortgaging deals:

• The process is never cost-free. There are always penalty charges and associated fees when leaving a mortgage deal earlier than its expiration date. There can also be fees included in the new contract. So, these additional costs including conveyancing must be taken into account.
• Look deeper into the new contract. The headline rate is just one of the many factors to look for. There are also discounts, cash backs, fixed rates, trackers for the base rate, and capped rates among others. The new lender (e.g. Natwest, Halifax, Northern Rock) must be able to explain the pros and cons of all the different elements of a deal.
• There may be liabilities involved when remortgaging. If the current deal is on a capped, fixed, or discounted rate, a borrower would have to pay early redemption charges and arrangement fees. If this piece of information is overlooked, a borrower may lose money.