Mortgage and Remortgage Advice
To reduce your monthly expenses, consider remortgaging your house. With a basic knowledge of what to factor in when deciding if remortgaging makes sense for you, as well as a solid understanding of the remortgaging process, you can confidentially evaluate this major financial decision.
Other People Are Reading
-
Identification
-
Remortgaging is paying off the mortgage you currently have by taking out another mortgage to fund the payoff. The key reason people remortgage their property is because they have determined that the remortgaging process saves them money. Money can be saved in two ways. The primary way is by getting a mortgage with a lower interest rate. The second way is getting a mortgage with a shorter term that has a lower monthly payment.
Get Educated
-
Before investigating remortgaging, make sure you fully understand the cost components and variables involved in a remortgaging. Those components include such items as closing costs, prepayment penalties and APR (annual percentage rate).
-
The Process
-
The first step in remortgaging is to fully understand your current mortgage, including such facts as prepayment penalties if applicable, the current rate you're paying and the remaining term of your loan, according to the Financial Web website. Second, shop around for a lender. Lenders can be direct funding sources such as banks, or intermediary parties such as mortgage brokers. Mortgage brokers can help you shop around, as most brokers have a variety of options and financial funding sources for you to consider. Next, consider each remortgage offering and funding source to pick the right loan for you. After selecting the funding source and mortgage type, the last step is to close the loan and pay off the original mortgage holder.
Considerations
-
According to Utah State University's Cooperative Extension, considerations for remortgaging include the new interest rate versus the interest rate you're currently paying for your mortgage, estimated closing costs if you refinance, the length of time you anticipate you'll be living in your current residence, and your income tax rate. Refinancing may be right for you if the difference between your current mortgage and the refinanced mortgage is 2 percent. The 2 percent spread usually covers refinancing costs such as closing costs.
Mortgage Types
-
Mortgage types include fixed-rate, adjustable-rate, graduated payment, pledged account and balloon mortgages. The most common mortgage is the fixed-rate model. The primary advantage of the fixed-rate mortgage is that the interest and monthly payments don't vary over the life of the mortgage. Although this type of mortgage usually costs more, it provides predictability.
Adjustable-rate mortgages provide a lower rate during the initial years of the mortgage; the rate is adjusted at specified times. Adjustable-rate mortgage payments can increase over time, depending on the economic environment. Adjustable-rate mortgages offer less stability than fixed-rate mortgages but generally a lower initial interest rate. Adjustable-rate mortgages often make sense for younger people who expect their earrings to go up and their ability to make higher payments more feasible.
A graduated payment mortgage offers a fixed interest rate and set payments for the initial term of the mortgage. Payments then rise at a rate determined in advance during certain intervals in the life of the mortgage. This type of mortgage is often good for younger people who anticipate their earnings will increase, as will their ability to make higher monthly payments.
A pledged account mortgage involves the buyer placing funds in a bank account for the purpose of making payments to the lender. The lender withdraws funds from the account on a monthly basis, in addition to a predetermined amount being paid by the borrower on a monthly basis.
A balloon mortgage involves the borrower making payments for a three- to five-year period, with the remaining balance due after this period has elapsed.
-
References
Resources
- Photo Credit Brian Jackson/iStockphoto/Getty Images
