Friday, 10 July 2009

Should I remortgage to help solve debt problems?

posted by debts.org at 04:18

At a time when thousands of families in the UK are suffering from the credit crunch, it may be tempting to remortgage your home to release much-needed cash, or simply to make your payments more affordable. Re-mortgaging can be the answer to your prayers, but it can also be a financial headache if you don´t choose the right options for you. Don´t jump at the first offer of a re-mortgage and take your time to shop around for the best deal to suit your needs.

Save money by remortgaging

More than 50% of all borrowers are said to be paying more than they need to for their mortgages each month. Often paying the bank or building society´s standard variable mortgage rate, many borrowers are unaware that other providers will offer lower rates. If you are considering remortgaging to help with debt problems, look around to find the best help available. Debts.org can give you advice and guidance if you are thinking of remortgaging your home in the UK. Mortgage rates have been hiked recently to subsidise low interest rates, and mortgage arrangement fees have also risen, along with charges for early payment/completion of a mortgage. If you are attracted by low interest rates, always ensure that the mortgage fees don´t make re-mortgaging more expensive.

Who to contact for independent mortgage and remortgage advice Financial advisors can recommend the best type of re-mortgage deals for you. You will also find a host of independent mortgage brokers who will freely advise you about the general state of the mortgage market, and who will be the best people to approach for a re-mortgage. Brokers will, however take a commission from the provider they recommend to you, and this could bias things towards particular banks/building societies. With so many internet comparison sites available to you now, it is advisable, and usually cheaper, to do some of the legwork yourself. Debts.org can then advise you how best to go about your re-mortgage.

Check your terms and conditions before re-mortgaging

Always make sure you fully understand the terms and conditions of your existing mortgage before contacting banks/building societies about re-mortgaging. You can then assess if there are any early redemption penalties and also make sure you are not financially tied-in to your existing mortgage deal. Serious debt problems and credit card debt problems can be eased by releasing money by re-mortgaging, but you need to make the right decisions to ensure you will not be paying out more in the long run.

Many penalties for early repayment expire after a set amount of time. Decide whether it is worth switching to a different mortgage/rate or staying with your current mortgage until the penalty dates have expired. Loyalty to banks and building societies is often misplaced. Ask yourself honestly, what they have done to reward your loyalty over the years, and never feel pressured not to move your mortgage if you can find a better deal.
Borrowing extra money through remortgaging

The main reason borrowers choose to remortgage, is to save money, and possibly to use it to clear other debts or loans. But you may want to remortgage to release some equity that has built up in the value of your property. Equity release is not uncommon, but you need to be cautious. It may work out cheaper on paper to borrow extra money through your mortgage, but the debt would then become secured. A secured debt is one that, if you default on your re-payments, means you could lose the collateral used for the loan. (Your home, in the case of a mortgage).

What remortgage choices will I have?

The most likely remortgage offers you will face will be fixed, capped, flexible or discounted arrangements. Fixed rate mortgages and remortgages are favoured by homeowners who want the certainty of paying a fixed amount each month. This rate can be fixed for between 2 and 5 years.

A capped-rate loan will offer a limit on the rate you pay. If interest rates rise your repayments will not go over a certain level, but you can still gain if rates fall below the capped-amount, as you will pay less.

Flexible mortgages enable you to overpay and underpay your mortgage repayments when you choose, and without penalty. This is ideal for people who have fluctuating incomes each month, or for those who may want to clear their mortgage early.

Discounted mortgages offer a reduction off the standard variable rate (SVR) for a set amount of time. If interest rates fall, the rate you pay will also fall but obviously it will rise with any interest rate increase.

If you are suffering debt problems, it may be that other options are open to you, apart from re-mortgaging. Debts.org can give you advice about debt management plans and Independent voluntary arrangements, as well as remortgaging options.

What to avoid when remortgaging

Try to avoid any remortgage deals with extended early payment penalties. Several lenders are now attempting to re-introduce extended penalties to avoid borrowers from switching from one bank to another in an attempt to reduce their repayment amounts. Always read the small print of any deal, and insist you are shown a clear print-out of all charges you are expected to pay if you agree to remortgage your home. Never sign anything you are unsure of, and take independent advice if you are worried about any of the remortgage clauses.

How to remortgage your home

When you decide to remortgage your home, firstly obtain a statement from your current lender which states how much money you still owe. Secondly, complete an application form for the bank/building society from which you intend to remortgage, along with details of your income, payslips, mortgage statements and proof of identity, plus a P60 form where applicable. The new lender will then carry out a survey on your home, which can cost up to £300. An arrangement fee may also be charged by the new lender which can cost from £200 to £1,000, depending where you are in the UK and the amount of your mortgage. If you shop around you may find lenders who will offer remortgaging services with free legal work and valuations, but the majority will charge you something.

Remortgaging works for thousands of people a year in the UK, but the main point to remember is: Always make sure savings on the monthly mortgage payments outweigh any costs incurred while making the switch from one arrangement to another.

How long does it take to remortgage a property?

It shouldn´t take longer than a month to remortgage a property, and the new lender will liaise with your previous bank/building society to complete any formalities.Once you have received a completion statement from your solicitor or from your new lender, the process is complete.
Debts.org can give you advice about a range of options to help you with debt problems. We are here to help, and our friendly staff will give you sound, professional advice about getting out of debt. Here at Debts.org we will explain and offer advice about debt management plans, Independent Voluntary Arrangements, remortgages and even bankruptcy.

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