Remortgage: A Smart Way to Manage your Debt
Remortgage Basics
You don’t want to lose your home, do you? When people are in varying degrees of financial distress, sourcing out much needed funds can be a source of stress. When it’s their home at stake, the last thing any homeowner would want is for banks (creditors) to foreclose mortgage. But what do you when, despite best efforts, you are unable to meet your amortisations as they fall due? One option is to refinance your mortgage or simply put, to remortgage your property.
Remortgage is one of several options available to homeowners who are no longer able to pay the amortisations due on their existing mortgage or who are otherwise short of needed cash for some unexpected need. It is simply renegotiating an existing mortgage with your current lender or bank, or looking for another bank or lender to payoff the existing mortgage (a buyout) and offer a repayment plan that is usually beneficial to the current owners of the property in question. This is a fairly limited sense of the benefits or purposes of a remortgage. In actual practice, property owners can remortgage their property for reasons other than the need described above. Basically, if total borrowing costs, meaning the total amount of interest paid is over the life of the mortgage and all incidental borrowing expenses would be reduced, it would be smart to remortgage your property.
Homeowners remortgage their homes to reduce amortisations, to payoff an existing mortgage early, to consolidate debts, or to have some extra cash. Amortisation payments can be reduced by a longer term, or by a lower interest rate. If the current rate in the market is lower than your existing mortgage rate, a remortgage generally saves on overall borrowing costs. Other times, it’s also smart to remortgage to facilitate repayment of high-interest debts, like credit card debts. Since fixed-rate mortgages charge lower interest rates versus credit cards, consolidating debts into one lender (the mortgagee-bank or lending company) reduces borrowing costs of homeowners.
Remortgage is also a good way to protect yourself from, or at least reduce the risk you get exposed to in the capital market. Homeowners with adjustable rate, mortgages are greatly affected by fluctuations in the market. One way to shield yourself from that risk is to refinance or remortgage the obligation with a fixed rate. Then, whatever the going rate in the market will be at any given point throughout the life of the new mortgage, you will pay the same amount of interest.
One thing that needs to be pointed out though is that remortgage is not always beneficial and does not always ultimately save borrowing costs. There are costs associated with the process of remortgaging your property and such costs must be measured against the potential benefit of a remortgage. Sometimes, these costs may be more than the amount you can save from future interest payments under the remortgage terms. The rule of thumb in economic decisions like this is always the Cost-Benefit rule. For a remortgage to be a favorable choice, the benefits of a remortgage should outweigh the costs it would take to effect the remortgage.
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