The market for remortgage loans is very competitive. Many homeowners decide to switch their mortgage every few years to lock in lower rates, or obtain other benefits that they would lose if they remained bound to their current home loan. Here is a review of the main money-saving benefits of remortgage loans.
Lower Interest Payments
The most common reason that people seek remortgage loans is to take advantage of a drop in interest rates. A lower interest rate translates directly into lower monthly payments, and more money in your pocket at the end of the month.
Many people in the UK don’t realise that cutting 1% off a £100,000 mortgage will reduce their monthly payment by around £80 a month. A home remortgage is the biggest single money saving activity possible. As finance adviser Martin Lewis says:
“A home remortgage is the financial equivalent of liposuction. Take the remortgage plunge and the pounds will slip off straight away.”
If you are paying your lender’s Standard Variable Rate (SVR), it’s quite likely that you can save money by switching to one of their different products with better rates and terms. Ask them for a remortgage quote. If your current lender cannot offer better rates on other products, then switching to a remortgage loan with a new lender could still yield you a net savings, even if it triggers early repayment charges from your current lender.
Raise Cash
If you have a need for a large sum of cash, then a remortgage loan may be the best way to release some of your home’s equity, rather than borrow from other sources at higher interest rates. Major life events often happen unexpectedly, leaving little opportunity to seek funds elsewhere. In that case a fast remortgage could be the answer. Even expenses that can be planned for, such as university costs, might best be paid by remortgages which release the equity from your home.
In some cases, a business or investment opportunity may present itself. Before considering a home loan remortgage, be certain that the opportunity is sound enough to justify the risk of potentially losing your home.
Consolidate Debt
Car loans and credit card debt can be paid down by using funds from a home remortgage. In effect, you are saving money by replacing higher-interest debt, such as car loans, credit cards, or second mortgages, with lower-interest home mortgage debt. Having a single payment to make each month is not only more convenient and easier to keep track of. It also helps to safeguard your credit rating by reducing the likelihood of a late or forgotten payment.
This strategy works best, of course, if you close the credit card accounts after paying them off. Otherwise, you may be tempted to run up the credit card balances again, and then find yourself in a worse situation than ever before. A home loan remortgage UK should be used to improve your finances, not make them worse.
Improve Credit Score
Elimination of excessive credit card and loan debt not only saves you money, it can also improve your credit score. By paying down credit card balances to below 50% of the credit limit, your credit score should improve. Using some of the funds from a remortgage loan to pay off and close loan accounts can also help to improve your score substantially. You should leave the accounts open only as an emergency source of funds, not as a means to buy luxuries.
Avoid Moving Home
If you need more living space, remortgage loans might provide a solution. You could remortgage at a higher loan amount, and use the proceeds to build an extension to your house. Then there is no need to move home. A home extension also gives the extra benefit of raising the market value of your house, thereby increasing your home equity again. If your equity rises enough from the improvements you make, you might easily qualify for a second mortgage or home equity line of credit in the future.
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