Remortgage

With the fall in interest rates, proliferation of the moneylenders and brokers has increased the competition in the money lending market. Remortgage and refinance have become financially lucrative and tempting options that can be availed of. Given the low rates of interest involved, it makes sense to remortgage your home or property and unburden yourself of your liabilities. You can pay off your existing high interest mortgage and live in peace. Or, you can shorten the term of your loan, reduce your monthly repayments, renovate your house, and build additional rooms and facilities to earn rent from it. You can buy a new car, pay for the university education of your children, consolidate your expensive credit card and shopping debts and also your finances. If you are an enterprising person, you can invest the savings earned through remortgage by buying a new house or a property and reap a fortune in the ever-exploding property boom. Another reason to go in for remortgage is that the market value of your property may have appreciated many folds since you first mortgaged it. A huge amount of built- in cash may be lying dormant and unused in the form of your home equity also. In situations such as these, you can utilize your money through productive investments.

If you decide to remortgage your existing property, you will have to consider the interest rates besides the upfront payments such as banking fees, appraisal and home inspection costs, legal consultation, insurance charges and so on.

The principal cost involves the interest rates, which are generally of two types: fixed and variable or adjustable rates. The fixed rate of interest, as the name implies, remains fixed throughout the loan term, though initially it is fixed for a period of one to five years, but can be extended to even 15 years and the process of fixation may continue to cover the whole loan term. The mortgage terms are generally 10, 15 or 30 years. The main advantage in fixed interest rate is that it does not fluctuate and by implication you do not have to pay more even if the market rate goes up. You do not have to worry about checking the interest rates every month and rebudgeting your finances to suit the fluctuating rates. There is one proviso with the fixed rates and that is that you cannot increase the amount of your monthly repayment installments to reduce the overall loan term. This is because your lender, too, may have funded your remortgage through loans on fixed interest rates over a stipulated period of time. If you try to do away with the loan sooner, he may have to suffer the loss.

The second category is variable or adjustable rate of interest also called ARMs—adjustable rate mortgage. As the name suggests, it varies with the market fluctuations. The loan terms are the same as in fixed interest rates. But each loan term has its own fixed and variable segments. In case of a 30-year adjustable mortgage loan term, the interest rate is usually fixed for the first 3/5/7/19 years and thereafter it is one year adjustable for the remaining 27/25/23/20 years. This is just an illustration, which may vary from lender to lender.

Yet another important asset for remortgage may be your home equity. Your home equity is the balance amount left after subtracting your repayments from the market value of your home. The market value of your home is determined in comparison with other homes in your area, which have been recently sold. Your home equity can be used as collateral in home equity line of credit. It is a form of revolving credit that features a variable interest rate and a draw period. The amount you borrow from your equity line of credit is called draw and draw period is time span during which you are allowed to use your available credit