What is remortgaging?

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Are you thinking about remortgaging? Remortgaging can be a great option for borrowers for several reasons. Understanding what remortgaging really means and what it involves may help you decide if remortgaging is right for you.

Remortgaging Explained

In short, remortgaging means that a borrower is exchanging their old mortgage terms for a new one, as well as possibly a new balance. When remortgaging, you are essentially revising and replacing the current terms of your existing mortgage agreement. Therefore, the new loan contract will replace the old one. 

Some of the terms of the existing loan that can be changed with these revisions include the interest rate, schedule of payments, and payment term. The remortgaging process also involves a reevaluation of the borrower’s credit and repayment ability. 

In general, consumers decide to remortgage so that they can take advantage of changing economic conditions by having more favorable mortgage terms.

Reasons to Remortgage

Some of the most common reasons that borrowers decide to remortgage are to obtain a lower interest rate, adjust the loan term, switch from a fixed to variable rate mortgage or vice versa, or to take advantage of the equity they have accumulated in their home.

The most common reason for borrowers to remortgage is to obtain a lower interest rate. Variable interest rates change over time. Factors such as monetary policy, the economic cycle, as well as market competition are the key factors driving interest rates to both increase and decrease. When rates increase, borrowers with a variable rate mortgage pay more in interest. However, when interest rates fall borrowers with a fixed rate mortgage end up paying more. Oftentimes, borrowers choose to remortgage when the interest-rate environment has changed significantly leading to potential savings that could be realized by a new loan agreement.

Borrowers may also be motivated to remortgage to shorten the term of their mortgage loan. When rates fall, borrowers may be able to remortgage and take out a new loan that would decrease their loan duration while keeping their monthly payments about the same as before due to the lower rates.

Remortgaging to switch from a fixed rate mortgage to a variable rate mortgage or vice versa can be favorable for some borrowers. Switching could allow borrowers to obtain a lower interest rate and therefore, lower monthly payments.

Many borrowers make the decision to remortgage so that they can tap into the equity that they have accumulated in their home. Homeowners may do this to help them cover major expenses and/or meet other financial goals.

Remortgaging involves adjusting and replacing your existing mortgage loan with a new one that has different terms. Understanding why some borrowers choose to remortgage and if those reasons may apply to you and be beneficial in your situation can help you decide whether to remortgage yourself.