Are you thinking about revising your mortgage loan, but you aren’t sure if remortgaging or switching your mortgage is the best option? Remortgaging and mortgage switching can be commonly confused because they can be very similar in some respects. However, they are two distinct options for borrowers, and therefore will have a different impact on mortgage loans.
Remortgaging will be the better option in some situations while switching your mortgage may be the better option in other instances. Understanding what remortgaging and switching your mortgage involve and how they can best be used to your advantage, will help you decide which is the best option for you.
Remortgaging Explained
Remortgaging is the process by which a borrower revises and replaces their current mortgage loan agreement with a new one. Essentially, remortgaging is the exchanging of old mortgage terms for a new one as well as possibly a new loan balance.
Because remortgaging involves a completely new mortgage loan agreement, several terms on the existing loan can be adjusted to be more favorable for the borrower. Examples of some of these terms are the interest rate, schedule of payments, payment term, loan amount, etc.
Generally, borrowers will decide to remortgage to achieve more favorable mortgage terms that would allow them to take advantage of changing economic conditions. There are four primary reasons that motivate homeowners to remortgage. First, borrowers decide to remortgage in the hopes of obtaining a lower interest rate. Second, borrowers want to shorten their mortgage term with a remortgage. Third, borrowers want to switch from a variable rate to a fixed rate mortgage or vice versa. Lastly, borrowers want to remortgage so that they can access their home equity to raise funds.
Mortgage Switching Explained
Mortgage switching is the process of moving your mortgage loan from your current lender to a new lender. Apart from the interest rate and loan term, the original terms of your mortgage loan agreement will remain once you have switched to the new lender. Therefore, you cannot change a term like the mortgage loan amount when you switch your mortgage.
There are two main reasons why borrowers decide to switch their mortgage. First, borrowers decide to switch because different lenders are offering lower interest rates than their current lender. Second, borrowers may decide to switch simply because they are unhappy with the service provided by their current lender.
Remortgaging and switching your mortgage can both be great options. By understanding what each would involve in the context of your situation, you can decide which is the better option for you.