If you need more money, and a large sum at that, what is your best option to help you get your hands on those funds? You may have considered re-mortgaging your home – it’s a reasonable option especially if you are not quite satisfied with your current mortgage.
Still, the route is not for everyone, but could it be right for you? Read our guide on re-mortgaging to help you decide.
Re-Mortgaging 101: What Does it Mean to Re-Mortgage?
Assume that you have a pre-existing property mortgage but intend to switch lender and loan, in essence, you are asking another lender to pay off your previous borrowings and give you a fresh a loan under different terms.
Now, you are indebted with a whole NEW loan under a NEW lender.
Do note that you can remortgage with the same bank as your pre-existing mortgage but some (not all) tend to offer less attractive interest rates to existing customers than they would new ones, so do shop around for the best rate.
When is it a Good Idea?
Although, we always tell you that decisions on large money matters should ultimately be your own; we’ve put together some compelling reasons for opting to re-mortgage your home.
If you are having any of these concerns, then you might want to consider a re-mortgage.
1. You need cash in hand
When emergencies arise and big sums are needed, rather than take up a personal loan or use a credit card, which carries high interest rates, a re-mortgage can make large amounts of cash available to you.
The upside is that you would enjoy lower interest rates that can be spread out over a longer period. In addition, the equity built up if the home’s value has appreciated would yield a nice positive balance to help you borrow more money.
Practice caution though – be sure that your reason for taking out the cash is worth extending your loan and the interests incurred.
2. You want better interest rates to reduce total interest costs
Things change, especially interest rates, so if you believe there is another lender who can improve your current rates; why not take advantage of that?
Lower interest rates could mean a reduction of total interest costs over the tenure of your loan and lesser monthly repayments as well. Before you take the plunge however, consider any additional costs that could offset your perceived savings.
For instance, take into account your current loan’s lock-in period penalty fee or other bank charges applied for taking on a fresh mortgage.
3. You want to consolidate your debt
Remortgaging can help you pay off numerous creditors and gather your debt into one loan under one lender. You could also benefit from better interest rates if you are paying off credit card or personal loans, and regrouping the borrowings under a home mortgage, typically carrying a lower rate.
In addition, your new lender may also provide you flexibility that your other loans did not, such as giving you the option to pay more in monthly instalments and reducing the tenure of the loan.
That said, re-mortgages are serious business and should not be undertaken on a whim just because more money is needed especially for frivolous reasons (we are not judging). The point is, there are some situations in which, a re-mortgage might not be beneficial
When it Might NOT Be a Good Idea
1. Your income has changed (for the worst)
It’s not a good idea to re-mortgage you home if you are making less money and simply need more cash to float. This is because first-off, you’d have a tough time even finding a lender and secondly, interest rates would not be attractive if lenders are taking on a high-risk borrower.
You’ll end up owing more, paying instalments for a longer tenure and lose out in the long run; your aim should be to remain profitable for as long as possible. Look out for other ways to bring in more cash, such as a second job, or downsizing your lifestyle where feasible; getting another mortgage should be a last resort option.
2. You don’t really understand the concept
You think you know, but you’re really not so sure that you really understand what you think you know. If your grasp of your impending re-mortgage is as convoluted as the above sentence then you probably need to ask more questions.
Do not be afraid to keep digging and examining until you get your answer – it’s next to impossible to make the right decision if you don’t have enough information. Worse yet, if the information you do have, does not make sense.
3. Peer Pressure
Don’t be surprised at the number of people who will jump into major financial whirlpools just because someone they knew thought it was a good idea. Amateur financial advisors abound and you would be wise to steer clear of those telling you to take advantage of the property you have just sitting there, earning you nothing.
Unsolicited advice as such should only be considered with the help of a professional consultant. Better yet visit The Credit Counselling and Debt Management Agency for a free evaluation of your personal financial situation and to further avoid undertaking unnecessary loans.
If you’re still on the fence about remortgaging, we’ve drawn up a quick list of pros and cons to help you on your way:
- Frees up funds to invest and buy property;
- Gain greater flexibility in repayments;
- Reduce monthly instalments.
- Incur penalty charges for early repayment;
- Extending the tenure of your loan and increasing total interest costs;
- Risk of defaulting or losing the value of previous payments made especially if close to settling the loan.
If the question of re-mortgaging has been on your mind, then you are most likely in the market for another major life decision. Nevertheless, don’t be scared to try and improve your finances, just be diligent and keep an eye open for dud deals in banking (they do exist) that will end up in you losing much more than you bargained.
Finally, if you do decide to re-mortgage your property, do:
1) Find a bank that is offering exactly what you are looking for (or as close as possible) in terms of interest rates, flexibility and absorbing penalty fees (Psst! Our home loan comparator should be quite useful in this area);
2) Commit to a rate that you can comfortably repay; and
3) Be prepared to decline any deal with which you are not 100% satisfied!