When to remortgage and when not to

By Jamie Hill - 25 February 2019

Home and Garden

There are many advantages to home ownership. It can be a good investment and a good way to build equity. It helps build or improve people's credit histories, and it's often a great source of pride for many individuals and families. It gives them the freedom to make their house a place that is uniquely their own.

Sometimes, people decide to remortgage their homes. A remortgage is basically taking out another mortgage on an existing property. This is usually done to either borrow money against that property or to replace a current mortgage that's already been paid on.

Before you decide to remortgage, make sure that you understand the risks involved. Take the time to evaluate all offers carefully before signing anything. Feel free to shop around with different banks and other lending institutions to make sure that you have the right terms and conditions that best meet your needs.

 

Here are a few instances when to remortgage and when not to:

When to remortgage:

1. When you want a better rate.

If you're locked into a current mortgage, there may be an additional administrative or exit fee when the mortgage is repaid. There may also be an early repayment charge. If you have a large sum of money tied up in your mortgage, these fees are good reasons to consider remortgaging.

2. When your home value has increased.

You should receive a property valuation from your county assessor's office every year. Take the time to spend a few minutes comparing the current year's valuation to the one you got last year. If the value of your property has increased significantly, you may be eligible for lower rates. Talk to your financial institution to see if you qualify.

3. You want a more flexible mortgage.

Some borrowers need a little room to breathe when it comes to their mortgages. People who work seasonal jobs or are reliant on incoming in during certain times of the year may need the option to miss a month on their mortgage payments. There are companies that offer more flexible rates and payment terms, but keep in mind that these options usually come with a cost.

When not to remortgage:

1. Life circumstances have changed.

If you've lost a job or changed jobs since you signed your mortgage paperwork, your income could have varied greatly. Most newer mortgage contracts require proof of income. This also means that lender criteria for banks, credit unions and other lending institutions have also changed. You may end up stuck in your current mortgage for these financial reasons.

2. When your mortgage debt is small.

If you don't have a lot of mortgage debt left, it's usually best to stick to your current mortgage. Most companies won't consider a remortgage for debts under a certain dollar amount. It can also be a hassle in terms of both time and paperwork in remortgaging in these situations.

3. You have very little equity.

If you have to borrow more than two-thirds of the property's value, it can be difficult to find a better rate While you can release equity by remortgaging, every company differs. Also, make sure to find out if there are any penalties or termination fees caused by your existing lender if you decided to switch companies.

 

These are just some of the instances in when remortgaging may or may not be a benefit. Every person's financial and personal circumstances are different. Weigh all of the pros and cons before you make your decision. A home is a major investment, so do all that you can to protect that investment. Choose the right financial solution for you so that you can spend your free time relaxing and making valuable family memories in your home that you'll talk about fondly for years to come.

 
 

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