Remortgages

Disadvantages of Remortgaging

Potentially, remortgaging offers significant financial benefits to borrowers, but there are costs involved. Before deciding upon a remortgage, a borrower should do their homework and calculate exactly how much money they would save and calculate all the associated costs.

In particular, look out for the following possible drawbacks:

Early redemption penalties: If the existing loan is a fixed rate, discounted rate or capped rate mortgage, then an early redemption charge, equivalent to several months' interest, is likely to be applied, in many cases. Be aware, also, that early redemption penalties may still apply to some mortgages even after the fixed rate, discounted rate, or capped rate period has ended.

If the mortgage included cashback when it was taken out, the borrower might have to repay some or all the cashback before the existing mortgage can be redeemed.

It is often advantageous for the borrower to wait until the early redemption penalty period has expired, before considering a remortgage.

Penalties applied to new mortgages: When choosing your lower cost remortgage product, look carefully at any penalty charges that might be applied if you were to remortgage again in the future. Not all lenders impose early redemption charges, so it is worth investigating several mortgage providers before choosing the optimum remortgage for your individual circumstances.

Don't ignore the remortgage details: Competition between financial institutions to obtain remortgage customers is intense. Many lenders offer competitive rates and discounts to encourage property owners to choose their remortgage products. However, be sure to examine the small print and work out if the deal is really as good as it appears at first glance. Ask the following questions:
How long does the low interest rate period last
Does the rate change to the Standard Variable Rate (SVR) at the end of the initial period
How does the lender's SVR compare with its competitors' SVRs

Debt Consolidation: Because a mortgage is the cheapest way for most people to borrow money, remortgaging to pay off credit card debts and high interest rate loans can be a tempting prospect. However, borrowers need to bear in mind that although their monthly outgoings will be reduced, over the longer term they might well find that they pay out more in interest charges. They also need to remember that if they default on their remortgage payments, they risk having their home repossessed by the mortgage provider.

Summary
Although remortgaging offers advantages to many borrowers, there are costs involved;
early redemption penalties can make a remortgage deal less attractive;
be sure to read the small print when considering a remortgage.