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Remortgages: The Helps and Hazards
By James Smith
When you remortgage you home you, just as the name you imply, get a new mortgage that replaces the existing one. This is usually something that takes place when the market interest rates drop down below what you are paying. Most often this is something that is considered by homeowners who hold fixed rate mortgages.
The Helps
Remortgaging can be helpful in quite a few different ways. It is a good way to lower monthly payments, lower overall cost of the home, and consolidate debts.
Lower Monthly Payments
One option that you have with a remortgage is to take the existing remaining balance and extend the term of the mortgage. For instance, you are 15 years into a 30-year mortgage and you have paid off $40,000 of a $120,000 mortgage. You can extend the loan term back out to 30 years on the remaining $80,000 and, in doing so, cut your monthly payments by a sizable amount.
Lower the Cost of the Home
That heading is deceptive; you will not actually lower the cost of your home. You will, however, lower the amount of money that you pay for it. When you remortgage you can take the existing balance that you carry and simply replace the interest rate for something lower. You will not pay less principle but you can save a lot of money in interest payments.
Consolidate Outstanding Debts
Many times you can take your high interest loans, like a credit card, a car payment, or even a school loan (although many school loans tend to have pretty good interest rates) and lump them in with your home loan. This will mean that you will pay more per month on your mortgage but, overall, you will be paying considerably less due to the fact that you are no longer separating all the loans. It can also, if handled properly, result in less money being paid out in interest as well, but this is a rarity.
So, should you do it?
There are a few things to consider before you go remortgage. Remortgaging is a very big deal that should be taken lightly or flippantly.
Interest Rates Fluctuate
Many people will remortgage at a lower interest rate only to see those rates plummet even further. Try to keep a close eye on what interest rates are doing and where they are heading. Consulting a professional at this time would be very helpful as they will have insight into what will happen next. It is nice to drop your interest by 1% but it is better to wait and drop it by 2%.
Re-mortgaging Costs Money
There is a cost associated with the remortgaging of a house. You might have to pay for things like a new loan application fee, a fee to get the house appraised again, or a fee to pay off your existing mortgage early. Make sure that you investigate all the costs involved before you set out on this venture.
You may be in debt longer
When you consolidate all of your debts it could very well keep you in debt longer, thus paying more interest, than you otherwise would. Many loans are not set up to be paid back in 30 years. In fact, most are set up on a 5 to 10 year schedule. The earlier mentioned consolidation of high interest loans will definitely lower your monthly payments but it also has the potential to cost more in interest rates. Think about it, if you were going to pay off $5000 over 3 years but now you have consolidated it into a 30-year mortgage, you will unquestionably pay much more money in interest on that loan.
The Re-mortgage Results
I think that it is safe to say that remortgaging has great results. It is also safe to say that it has some negatives. But doesn't everything? These kind of decisions are important decisions that you must weigh for yourself. Perhaps you need lower monthly payments, remortgaging can help. Perhaps you want to lower your overall interest payments, remortgaging can also help. But it can also cause your total interest to increase and it can put a very taxing amount of fees on you in order to accomplish the remortgage. You have to consider all sides of the box before you decide to open it. Good luck and happy savings!
About the Author
James has been writing about Mortgages - http://www.1mortgagesuk.co.uk and Mortgages UK - http://www.1mortgagesuk.co.uk for many years.
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