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What is a remortgage?
A remortgage refers to the process of paying off on mortgage with the proceeds from a new mortgage using the same or the previous property as security. This term is used generally in the UK. Often the purpose of changing the mortgage is to get a more favorable interest rate from a different lender. The process of remortgaging mainly involves transferring the existing mortgage from one lender to another or from one product to another from the same lender. There are various reasons for remortgaging like reducing the size of repayments or to pay off early mortgage or to raise capital or to consolidate other debts. Also remortgage is done for getting a better interest rate or to consolidate other debts.

Benefits of remortgage

Maximise your savings – In case of remortgaging you can save a considerable amount of your cash when the market rates of interest are lower than your mortgage.

Consolidate multiple debts - You can transfer all your debts with high inertest rates into the home loan.

Reducing monthly payments – You can reduce the monthly payments by extending the loan period by changing to a new deal with lower interest rates but different loan terms.

Getting extra cash – When you consider remortgage, the amount offered through it helps you release the equity in your home provided the home value is higher than your existing debt.

Some likely disadvantages

Variable interest rates – The rates of interest may vary as the standard variable rate may change with respect to rate changes in the market.

Early repayment charges – It is best to remortgage after the early repayment charge period is over, as you will have to bear the redemption charges for early repayment.

Extra payments through consolidation – You can combine all your debts into a single mortgage and hence lower your monthly payment of interest and loan.

Costs of remortgage

Stamp Duty - The stamp duty for remortgage in UK maybe 1% of the purchase price of the property against which you will remortgage. The purchase price of the properties will not be more than 60000 British Pounds, but for properties costing more than 250000 British Pounds the charges will be higher.

Mortgage Indemnity Guarantee – The mortgage indemnity guarantee refers to an insurance policy for which you will have to pay the premiums in order to protect the lender in case of any defaults made for mortgage payments.

Other costs – The other costs may include surveyor’s fees, application fee for remortgage, broker’s fee and charges for redeeming the old mortgage.

When is remortgage the best solution?
Remortgage is a decision which depends on many factors. In one case there is no better option than shifting your standard variable rate mortgage to a fixed loan rate when the market rates are rising. However changing the terms of the loan is a better option than modifying the existing interest rate. In this case your current monthly payments are reduced but you will have to pay more interest for the entire loan period.


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