The Guide to Refinancing Your Home: What You Need to Know About the Remortgage Process
It’s no secret that money can get tight in today’s economy. With the holidays and the close of the year right around the corner, many people may be how to make ends meet.
Many homeowners are wondering how to remortgage their properties. Although refinancing is a very common financial step, remortgage advice isn’t always easy to find.
Fortunately, we’ve gathered everything you need to know about how a remortgage works into this article. This guide will show you why you might want to consider refinancing your home and answer several questions you may have about the remortgage process, such as:
- What is “remortgage”?
- How does a remortgage work?
- What steps need to be taken?
- How long does it take to remortgage?
- Where can I get more remortgage advice?
By the time you’re done reading, you should know enough about how to remortgage your home to proceed with confidence.
What Is a Remortgage?
Remortgaging your home is the process of refinancing the property with a new mortgage loan. In other words, you take out a new loan, using your home as collateral, and use a portion of the funds loaned to pay off the existing mortgage.
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Put simply, that’s what remortgage is, and it’s a process that happens every day. It’s perfectly legal, and there are a number of very good financial reasons to go through the remortgage process.
Good Reasons for Remortgaging
You may be thinking, “Why would I want to think about starting over on paying for my home? How does a remortgage work in my favor when I’ve made all of these payments?”
After all, you’ve invested a lot of money over the years, right? Actually, that’s exactly the point: your equity in your home is an investment and can be used to finance other important things. Here are a few good examples:
- Home Repairs: Protecting your investment in your home involves making sure that it holds its value. Over time, things break or wear out; in many instances, your insurance may not pay out, or the deductible may be too high. When those repairs build up, it might be worth considering the remortgage process to finance the work.
- Improvements to Your Home and Property: Many home buyers purchase their houses with the idea of adding on or remodeling to create their dream home. If you’re that kind of buyer, you may find that putting the money together for those alterations or additions isn’t as easy as you might have thought.Financial advisers that offer remortgage advice often recommend refinancing as a good way to fund property improvements. You’ll increase the resale value of your home, enjoy it more, and may even end up with a little spending money afterward.
- Bill Consolidation: Here’s another way to hang on to a little more of your monthly income. Student loans, multiple auto payments and similar debts can add up to more than you can comfortably handle. By using your home as collateral, you can pay off those big debts and end up with one smaller monthly payment. Debt consolidation is just one more example of how a remortgage works for hundreds of people every year.
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- More Flexible Terms: Shop around a bit and you’ll find that there is a whole world of new options available in mortgage lending. You can even find deals that allow you to skip a few payments now and then. Keep in mind that none of these perks come free, so pay close attention to rates.
- Avoiding a Rate Increase: If you take out an adjustable rate mortgage (ARM), your mortgage deal includes a reduced interest rate for the first five years or so. When that rate runs out, your rates go up pretty quickly. It’s often possible to remortgage before this takes place, but watch out for early payoff fees for your existing loan. When you get remortgage advice from any lender, this is one of the points that will be stressed.
- Lowering Your House Payments: That’s right! No discussion of why and how to remortgage your home would be complete without mentioning this possibility. Lending rates are constantly changing. Also, recent government programs have made it easier to end up with lower payments, to encourage homeowners to use the remortgage process. Even if you’re considering refinancing for a different reason, isn’t it good to know that you could ease your monthly financial burden at the same time?
Good Reasons NOT to Remortgage
While we’re discussing how to remortgage, it would be wrong not to mention that there may also be good reasons not to consider it.
No matter how attractive the idea may seem, it’s important to keep in mind that it’s a big financial move. Any investor will tell you that big financial moves can have big consequences.
That being the case, it’s important to ask yourself, “How does a remortgage work against me?” before jumping in with both feet. After you’ve started the remortgage process isn’t a good time to find out it isn’t in your best interest. Consider these reasons before you decide:
- There may be a substantial penalty. As mentioned in the previous section, many lenders impose an early payoff penalty. If this clause exists, you’ll want to know how much extra you’ll have to pay if you remortgage.
- Your current mortgage rate is very low. Refinancing your home only to end up with a higher interest rate is only going to worsen your financial situation. Ideally, that’s not how a remortgage works.
- Your mortgage balance is very low. By the same token as the reason above, refinancing with a very low outstanding balance doesn’t make financial sense. Many lenders won’t even consider a remortgage loan if the balance owing is below a certain figure.
- Your credit score has dropped. If you’ve had credit problems since you obtained your last mortgage loan, chances are you won’t get the best rate on your remortgage, if you qualify at all.
- You need funds immediately. Ask most lending institutions, “How long does it take to remortgage?” and the answers will range from about 30 days to a few months. If your purpose is to get funds in a hurry, a remortgage probably isn’t your best choice.
How Does the Remortgage Process Work?
So, just what is a remortgage? We’ve already covered the fact that remortgaging is simply a matter of taking out a new loan and using part of the funds to pay off the old mortgage. Now, let’s get into the real question of how to remortgage your home.
If you’re in good standing with your current lender, there’s no reason not to just call and ask, “How does a remortgage work with your company?” Most lenders will be happy to have you sit down with a financial officer who will look over your current situation and then offer what he or she considers to be the best remortgage advice.
Although keeping your remortgage process “in house” may make things simpler, it isn’t necessarily going to be the best option. There’s nothing wrong with shopping for a new lender. Keep in mind that financial institutions have to loan money to make money. That means that they’re willing to compete for your business.
Make some calls. A Google search for “remortgage” will probably yield more results than you’ll need, but a little bit of “internet ingenuity” will get you headed in the right direction quickly. We’ll even help get you started, with ConsumersAdvocate.org’s list of the Top 10 Mortgage Lenders for 2016.
Remember, when you contact a lender, start by asking how a remortgage works. You may get the same information many times over, but you’ll probably get some insights that you’d have missed if you hadn’t asked. Remember also to ask, “How long does it take to remortgage?”
This “homework” is one of the most important steps, so don’t take it lightly. Remember, it’s your home and your future, so choose a lender wisely. While you’re shopping for the right lender, don’t be convinced to fill out any paperwork until you’ve got a list of prospects. Talk, listen, and take notes.
While you’re choosing a lender, don’t hesitate to get some professional remortgage advice. Your bank’s financial advisor can often answer any and all questions, from “What is a remortgage?” to complex matters such as “When is the best time to remortgage?” Most U.S. banks will offer financial planning services at no charge once per year for their checking and savings customers.
Pre-Qualify with Your Favorites
So, you’ve done the legwork and now you’ve got a list of a few lenders that offer the best deals on remortgaging for your purposes. Good. Now it’s time to start on the paperwork. (Yes, it’s a pain, but it’s how remortgage works.)
Pre-qualification is the standard for any kind of borrowing these days, and it’s the same for the remortgage process. Basically, it consists of providing the lender with a quick overview of your needs and financial status. Get your financial records together and be prepared to authorize the lender to check your credit. Most lending institutions will have a way for you to pre-apply online.
It’s often helpful to have a copy of your credit report handy during this process. It’s a simple matter to get a copy online from FreeCreditReport.com, CreditKarma.com, or similar sites. You can also get a copy by going directly to Experian.com or TransUnion.com, the two leading credit reporting agencies.
Results from the pre-qualification process should get to you quickly. How you’re notified may vary from lender to lender, but the most common methods are either an immediate response page when you submit your application or an email that arrives shortly after.
If It’s a Yes, You’re on Your Way!
If you get the notification that you’ve been pre-qualified by one of your choices, congratulations! You’re one of the lucky homeowners who is taking advantage of how a remortgage works to improve your financial status and help build a better future. Your lender will take it from here, so you don’t need to be overly concerned with all the details of how to remortgage. You’ve done your homework; let the professionals walk you through it.
If you’re not so lucky with the first batch of lenders, don’t lose hope. Being rejected by a lender isn’t the end of the world. In fact, it might be just the motivation you need to find and solve a few problems that are holding you back. Remember, lenders want to loan money, so if there’s a way to get you involved in their remortgage process, most will be willing to give you some pointers.
You can consider trying with other lenders that may not offer the best rates, but remember what remortgaging is about. The point is to improve your financial status, so be careful not to overextend yourself. If the numbers simply won’t work, consider an appointment with a financial counselor. That free service at your own banking institution is a great way to start.
If you’ve read this far, you should be able to answer questions like, “What is a remortgage?” and “How does a remortgage work?” like a pro. We hope you’ll be able to use the remortgage advice here to find the answers you need to make informed decisions about whether you should remortgage and how to remortgage if you decide to.
The remortgage process is far from the only solution to improving your finances and building a stable future. It’s simply one of the many ways you can use the equity in your home as leverage to do so.
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