Remortgage – What Does It Mean?
A mortgage is a loan that is secured on your property, whether that is a flat or a house. A remortgage is simply the replacement of one mortgage with another.
Depending on your circumstances and credit score, you may be able to remortgage with your existing lender, or with somebody else of your choice.
Homeowners may remortgage for a number of different reasons, including haggling for a better rate, releasing some capital or to consolidate their debts. The decision to refinance your home loan is as important as choosing your original mortgage, so you may wish to ask the following questions about the product that you select.
What type of mortgage are you going for?
If you are giving some thought remortgaging, you may be dazzled by the choice of products available. For instance, you may have to choose between:
- a repayment mortgage;
- paying the interest only; and
- an offset mortgage (where your bank balance can be set against your home loan).
Choosing a mortgage is a complicated issue and there is a great deal to think about.
The interest rate
A move in interest rates may usually often prompt people to change their mortgage. After all, who can resist trying to get a bargain? However, the ways in which interest rates are generally calculated may be equally as diverse as the mortgage types themselves. Some relate to the Bank of England’s rates, while others are fixed rate arrangements between the lender and the borrower.
The choices you generally have to make may include:
- fixed rate;
- “tracker” rates (which “track” an interest rate that is usually set by a third party (typically the Bank of England, and may change by reference to it); and
- variable rates (interest rates that change according to the lender’s own rates).
The mortgage term
The length of the new mortgage term you may be offered may depend on how old you are. Remortgaging for a longer period of time could be more difficult if you are nearing retirement age.
What does “equity” mean?
Often you will hear the words “equity” when looking to remortgage. If you take the value of your house and subtract the outstanding balance of your current mortgage, the remainder is the amount of equity. It is often expressed as a percentage and may affect the amount that lenders may be prepared to advance as a mortgage. You may find that the higher percentage of equity you have, the more choice of deals that may be available to you.
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