Five Reasons To Consider Remortgaging
Topics: Mortgage, remortgage, payment, protection
To begin with, just a few words of caution. Please be aware that, although remortgaging can save you money, it does cost money to change lenders. Your existing lender may demand an exit fee and possibly an early repayment charge. You will probably also have to pay an arrangement fee to join your new lender. In all probability, there will also be a legal bill as well. And now with the credit crunch a fact of life, remortgages are much harder to find. So you may decide to use a mortgage broker to help you - but they will almost certainly charge a fee.
This doesn’t necessarily mean you shouldn’t remortgage but you should do your sums before taking deciding to go ahead. But remortgaging isn’t just about saving money. It’s also necessary to get a mortgage which is right for your situation. So here are four more reasons to think about remortgaging.
Moving up the property ladder
Maybe you’re moving to a bigger house and need to borrow more money. You may have a portable mortgage that is you can transfer it onto your new
property. But, if as well as moving, you need to increase the amount you’re borrowing, it might be sensible to take out a new mortgage for the whole sum.
You want extra cash and your house has gone up in value since you bought it.Pre credit crunch, this was one of the prime reasons people remortgaged. But sadly, not now. House prices are already some 15% down on the peak of summer 2007 and many commentators are predicting prices will fall 30% before they bottom out. Nevertheless, if you still have adequate equity in your house then remortgaging can still be used to raise money. The lower the ratio of the loan to the market value of the property, the cheaper the remortgage will be. Your existing mortgage doesn’t fit your new circumstances. Perhaps you’ve been lucky enough to have a pay rise, or maybe you’ve inherited some money. So you can make extra payments on your mortgage but your current lender won’t let you. Or perhaps the credit crunch is really hurting you and you need to miss a payment. Travelling, changing jobs, returning to education whatever the reason, there are mortgage deals that will allow you take payment holid
ays.
Maybe you’ve been tempted by an offset mortgage which combines a savings account with your mortgage. Whatever flexibility you’d like in a mortgage, the probability is it’s out there. But remember, lenders don’t offer these features for free. Expect to pay for flexibility with a slightly higher interest rate. So don’t be tempted with bells and whistles unless you’ll really use them.
You have an endowment mortgage which could go wrong.
Millions of homeowners still have an endowment mortgage and the majority of those have been warned to expect a shortfall on their endowment payout. If you are one of those, you need to take action. After all, you will still have to pay off your mortgage on the due date, even if your endowment investment has performed poorly. Your investment is your problem, not your lenders.
With an endowment mortgage your monthly payment achieves two things. Firstly, part of the money goes to your mortgage lender to pay the interest on the money you’ve borrowed. The balance is paid to an insurance company which invests it through your endowment policy.
So if you borrowed $150,000 on an interest-only mortgage, you’ll still owe the lender the same $150,000 25 years later on. If you’re lucky, your endowment policy will have grown sufficiently for you to fully pay off some the debt. But in reality in recent years endowment policies have performed badly and most insurance companies have cut their bonuses. This means the money the policies pay out are unlikely to cover the mortgage debt. This leaves the homeowner having to find the shortfall.
If you’re facing an endowment mortgage shortfall, it may be sensible to convert part of your existing mortgage now to a repayment mortgage. This enables you to start paying off some of the capital you owe to make sure that you’ll be able to pay off the remaining debt at the end of the term.
It will increase your monthly repayments, because you’ll be paying the interest you owe as well as paying off some of the capital. You can then consider selling or cashing in your endowment policy and using the lump sum realised to repay part of your mortgage, or to keep the policy going as a separate investment.
It can be difficult to decide what to do with your endowment policy especially if you’re relying on the life insurance element provided by the policy. Therefore, before you decide you should obtain specialist financial advice.
Many people with pension mortgages or ISA mortgages face the same problem. Poor investment returns could mean they will also struggle to repay their mortgages.
Some financial commentators also estimate that there could be another million people who have interest-only mortgages but don’t have any investment plan to repay the mortgage when repayment of the capital becomes due. This issue is also concerning the Financial Services Authority. Some people are planning to sell their house to repay the mortgage capital, assuming the property’s value will have grown sufficiently in the meantime to leave them a tidy surplus. But that’s not guaranteed especially post credit crunch. Therefore, if you are in this position it makes good sense to convert at least a portion of your mortgage to a repayment basis as soon as you can.
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