Editorial Disclosure: The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone.
Anything having to do with finances is already stressful enough. When you add your home as a factor, that stress level multiplies. We naturally equate our home with our safety and security, our ability to provide for our family, and our ability to keep them safe and warm. The very thought of losing our home is enough to strike terror into anyone’s heart. That’s why our mortgage arrangements are so vital to our mental and emotional, and financial well being.
While you probably didn’t need to put much thought into whether or not you wanted to get a mortgage (you probably needed one to get your home in the first place), planning to remortgage your house requires a bit more thought.
There are many factors that can affect your decision and it is a big one. Your new deal could either really help your situation or it could set you back. That is why it is so important to take everything into consideration. Where do you start, though?
There are many reasons why you might be thinking about trying to remortgage your house. Even if you haven’t given it much thought, it is worthwhile to take a moment to consider it. If your situation has changed, a remortgage may be very beneficial to you. Here are some common reasons why you might want to consider it.
You want a different type of loan. There are many types of mortgages out there, and the deal that suited your needs 5 years ago may not be such a good fit now. Perhaps you had a fixed rate mortgage and want to switch to a variable rate because interest rates are low and you want to take advantage of the lower cost of a variable rate mortgage. Perhaps you need a more flexible mortgage or one with different features that work better with where you are in life now.
You think you can get a better interest rate. If you have a fixed rate mortgage, odds are that the market has changed since you took out your mortgage. If the prime rate has dropped, you could be in for huge savings if you remortgage your house now. Here is a quick example of how much you could be saving. If you took out a $100,000 mortgage at a lending rate of 5% and amortized over 25 years, you are paying roughly $585 per month.
Now, say that the prime rate has dropped down to 4%. A 1% drop might not seem like much, but that same mortgage at a 4% interest rate will mean your payments got down to $525. That’s $60 a month! If you still don’t think that is much in the way of savings, look at the total interest paid over those 25 years. At 5% your total interest paid will be $75,377. At a rate of 4% interest, your total interest paid will be $58,351. That’s a whopping $17,026 just for renegotiating your mortgage at the right time.
The value of your home has gone way up. When your bank first gave you your mortgage, they calculated the risk/gain potential of lending to you. If the value of your home has increased significantly, that means the risk of loss if you default on your loan is much lower because your collateral (your home) is more valuable. If you fall into a lower loan-to-value bracket, you could be offered a better interest rate. That means savings for you.
You need to use the equity in your home. We all run into tough times, especially in today’s world. Sometimes when finances are stretched you might need to liquidate some of your assets. Maybe your son or daughter is getting married. Maybe you have a steep medical bill that you need help paying off. There are any number of reasons you might need to get your hands on some extra cash. If you have equity in your home, renegotiating your mortgage could give you the cash you need now.
You’re afraid your interest rate will be going up. If you have a variable rate mortgage and have been enjoying a low-interest rate, but you are afraid that the prime rate is going to go up because interest rate trends, it might be a good idea to remortgage your house. If you can lock in your mortgage at a fixed rate before interest rates go up, it may be worth your effort.
Your current agreement is about to expire. If your mortgage deal is set to expire soon, it may be wise to start considering your options now. Investigate the current deals being offered by your bank as well as the competition and keep an eye open for a great offer. Don’t count on there being the same kind of special offers available at the time that your deal expires.
Clearly, there are a lot of reasons for you to make the choice to remortgage your house. If you fit into any of those categories, you might want to give it some serious consideration. There are also several reasons why it probably wouldn’t be the best idea right now. Here is a short list of reasons why you might not want to remortgage your house.
Your financial situation has taken a turn for the worse. If your financial situation has taken a turn for the worse, it probably isn’t the best time to remortgage your house. If you have lost your job, if your credit rating has dropped, or if your debt ratio has increased, you may no longer be a good risk in the bank’s eyes. If you do manage to get approved for a mortgage renewal, chances are you will be charged a higher interest rate to offset the risk that you will default on your loan.
The value of your home has dropped. The value of your home is key when it comes to the rate you get. If the value is low or has dropped significantly, then there is less chance of breaking the bank even if you default on your loan. Less value equals more risk and more risk means higher interest rates. You might want to hold off until home values go up or you might consider doing some renovations to bring up the value of your property first.
Interest rates have gone up. If you have a fixed rate mortgage that you got when the prime mortgage rate was low, you might want to hold onto that deal for as long as you can. I significant increase in your interest rate means a lot less money in your pocket every month and those bigger payments add up to a lot in the long run. If you really need to remortgage your house and the prime rate is running high, consider waiting until it goes back down.
You have already paid off a big chunk of your loan. If most of your mortgage is paid off, you might want to consider what fees you will need to pay to remortgage your property. Think about sticking with a slightly higher rate mortgage rather than negotiating a new one because, in the end, those remortgaging fees could end up costing you a lot more than your interest payments are.
There are penalties for early payment or refinancing. Look at the small print on your mortgage contract. There could be expensive hidden costs to paying off your loan early or remortgaging before the term of your contract has run out. These fees can add up to a lot of money and it might cost you more than you save to remortgage.
So we’ve given you a lot to think about. We’ve gone over some of the reasons why remortgaging your home is a good idea and some other reasons why you might want to hold off. If you have decided to go ahead with your plan to remortgage, there are a few things you can do to ensure that you get the best deal you possibly can.
Check on your credit score. The last thing you want is a nasty surprise when your bank runs your credit rating. Knowing your credit score in advance not only leaves you better prepared to negotiate your deal, but you may have the opportunity to increase it before you go for a remortgage. A higher credit rating means a lower interest rate and big savings over time for you.
Do your research. Check out what kind of offers your bank has ahead of time. Check out what kind of deals competing banks have and compare current mortgage rates being offered. Make sure you are aware of any hidden fees or penalties. The better prepared you are to discuss what kind of options are available to you, the better the deal you are likely to get. This is far too important a negotiation to go into it without a good amount of knowledge in your back pocket.
Take a close look at your finances. The bank is going to want to know if you are a good risk, and that means they will want reassurance that you can afford your monthly payments. Affordability is key, and if you have a lot of debt and monthly payments, that means the less disposable income you are likely to have for your mortgage payments. Even if your credit rating is great and you make all of your payments on time, a high debt ratio might leave you with a higher interest rate. Try to clean up your finances 2 or 3 months before trying to refinance.
Keep an eye on those fees. This one can’t be mentioned enough. Make sure that the fees tied to your remortgage deal are ones that you can either avoid or afford. Ignoring the extra fees could make all the difference between a great deal and a financial burden that you will be carrying for a long time. Application fees, administration fees, and appraisal fees are some of the extra costs that may be negotiable, so make sure to look over the small print and discuss them with your banker.
As we said at the start, this is a very important decision that could have a big impact on your finances for a long time. When the time comes to remortgage your house we want you to have the peace of mind that comes with knowing that you have made the best decision for you and your family. It is often said that knowledge is power, but when it comes to remortgaging your home, a little knowledge can mean more dollars in your wallet.
Advertiser Disclosure: Many of the listings that appear on this website are from companies which we receive compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). The site does not review or include all companies or all available products.