Remortgages are not Right for Every Homeowner

Even though remortgaging is able to provide many benefits, to the wrong homeowner it can present a high level of risk as well.  Each homeowner is locked into a particular mortgage deal they are dealing with at the present time.  When the consideration of remortgaging comes up, realize that every situation is unique and that remortgaging right this moment might not be the most advantageous thing to do at the time.  Yes, a remortgage is able to deliver a better interest rate, make overpaying a monthly mortgage a possibility, or can free up some much needed cash.  But, also understanding the level of risk to remortgaging at that time is required to make the best financial decision possible.

The best reason for a remortgage to present the greatest amount of risk is when comparing the savings achieved over the lifetime of the remortgage compared to the cost of opting out of the current mortgage loan and into a remortgage with another lender.  Most lenders’ fee to buy your way out of the current mortgage product is substantial.  The lender typically makes a borrower aware of this amount at the onset of the original loan.  The reason for it to be substantial is so the borrower will not even consider going elsewhere for a new loan.  It also usually covers any administrative fees involved in the process.  Sometimes, lenders will offer a “no fee” transfer if any current customers want to transition into a remortgage and not go looking outside their lending institution.  At the same time, competitors usually offer to pay off any fees involved with a new borrower coming to their bank.  It is the time when the borrower is the most vulnerable.  So, it is the time when the borrower needs to be most aware of their own situation and what conditions come with their current mortgage loan product.

Another advantage of a remortgage is its ability to extend the current debt over a longer period of time.  At first glance this seems like a positive to a remortgage.  Looking closer it is obvious that in addition to adding more time to the loan for its repayment, it also will add more interest cost to the entire loan.  This is a negative.  In many cases, the extension in time is necessary to move forward with the remortgage.  Keep in mind, the longer any loan takes to pay it off the more interest accumulates on the loan.

When using a remortgage to consolidate debt or help in the cash flow of a family budget, realize the inherent risk of the family home when doing so.  If by chance the payments fall behind, then the family home is in jeopardy of being repossessed.  Planning ahead for the untimely event of a job loss or some other out-of-your-hands occurrence is always the best idea.  This can make working through the tough times that much easier.  Using experience from past difficulties will always help a family make better decisions toward a more successful tomorrow.

If using a remortgage to release debt on a property, make sure the numbers have been run to ensure success in the event of a financial crisis.  Negative equity is also a consideration.  This is a condition which is usually a result of circumstance.  This happens when the value of a property drops below the amount owed on the property.

A remortgage has the ability to provide many benefits to a family budget.  At the same time, risk is always present.  Make sure of all the figures and understand consequences of different scenarios.  This should keep most families safe from financial turbulence.



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