Mortgages > Re-mortgage Guide

Mortgages

Re-mortgage Guide

Re-mortgaging means replacing an existing loan with a new one from a different lender - although it is not uncommon for people to say they have re-mortgaged when they have simply taken a new deal from their existing lender.

Reasons to re-mortgage:

You can take out a mortgage at a lower interest rate thus reducing your monthly mortgage or loan payments. This is the most popular reason. If this is your motivation you should look at the rate you currently pay and then see if there are any better rates on the market.

To raise cash or release equity. This is an option of your property has increased in value, or you've paid off a lot of your mortgage, and is simply a matter of borrowing more than your current mortgage debt.

Cheaper to extend than to move house. You may find that it's cheaper to re-mortgage to raise money for an extension than to move home if you add up all the removal costs, stamp duty etc.

Re-mortgaging to consolidate debts. This is cheaper than taking out a personal loan or using credit cards. This is because interest rates on mortgages can be as low as 4% while the cheapest personal loan rates are about 7% and standard rates on most popular credit cards are as high as 17%. Therefore to consolidate bills, personal loans and credit cards, all you have to do is increase the size of your mortgage and use the money that you've raise to pay off your more expensive borrowings.

Costs to consider:

Early redemption charges are sometimes levied if you repay your loan within a certain period. They are often found on deals with a special offer rate up front - for example a fixed or discounted rate - and are designed to help the lender recoup the costs of setting up the deal and secure their profitability in the event of the mortgagee switching.

On top of redemption fees, most lenders charge a sealing fee and/or a fee for releasing the deeds, which can add up to around another £100.

The total legal costs should be much lower than when you bought the property, as there are no contracts to prepare and there is no stamp duty to pay. However, you should still budget to spend £300-£500, unless your new deal comes with the legal costs paid by the mortgage company.