What are the pros and cons of remortgaging?

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Simply, remortgaging occurs when the borrower replaces their current mortgage loan agreement with a new agreement complete with different terms. The changes in the loan agreement may be reflected in the interest rate, payment schedule, and/or payment term.

Borrowers decide to remortgage so that they may have more favorable loan terms that would allow them to better take advantage of changing economic conditions. Therefore, remortgaging can be a great option for some borrowers.

Monthly Payments

Pro: When you remortgage, your total loan balance will likely be lower than your original balance since you have already been making monthly payments. Because you have been making these repayments and earning equity in your home, a remortgage for the same loan term will lower your monthly payment amount.

Con: A remortgage that resets the loan term will lead to a significantly greater amount of interest being accumulated. Therefore, you will end up paying a lot more in total interest.

Variable Interest Rate

Pro: Remortgaging can allow you to take advantage of lower interest rates if rates fall after you have already taken out a fixed rate mortgage. A lower interest rate could allow you to save a considerable amount of money over the life of the loan by lowering your interest payments.

Con: Remortgaging to switch from a fixed rate mortgage to a variable rate mortgage may not always save you money. You pay more in interest at the beginning part of your payment schedule, therefore if you have already been paying down the mortgage for a few years, remortgaging may not save you money. This is because remortgaging does cost you money, so it is important to compare how much the remortgage will cost and could save you.

Fixed Interest Rate

Pro: Remortgaging to a fixed rate mortgage can also be beneficial because it protects you from the ability of variable rates to rise in the future and the increased repayments that would result. Additionally, the monthly payments will be consistent and much easier to budget for since the rate will stay the same over the life of the loan. 

Con: However, if interest rates decrease after you have remortgaged to a fixed rate mortgage, you will no longer be able to benefit from the lower interest payments.

Loan Term

Pro: Remortgaging can also allow you to achieve a shorter loan term by increasing your monthly payments. Paying more in monthly payments, but for a shorter period, will allow you to save a significant amount in interest over the life of the mortgage. 

Con: A shorter loan term will increase your monthly repayments and make monthly budgeting more difficult.

It is important to understand the benefits and downside to remortgaging before making the decision that is right for you.