Some people get tricked into remortgaging their homes, but it is not always necessary to do this. They get told that the interest rate could drop and that they should not be tied to a fixed rate. Here is some information that can help you decide if you should remortgage or not.
Who actually benefits from a short term fixed rate?
Mortgage brokers, banks and building societies are the people who benefit most if you decide to remortgage your home. They earn commission for every mortgage submission and are therefore going to try and convince you to do this every few years. If you are paying someone to organize a remortgage for you, then you need to make sure that they are registered with the correct institutes.
The new mortgage lender will charge you a fee for the new deal that you are getting. Make sure that you know exactly what fees you are paying for what services and be sure to not accept so – called free deals. Nothing in life is free and you will end up paying for everything at some point. Make sure that the interest rate you are being charged is not inflated to compensate for their fees.
Each time you remortgage you would end up adding all the extra remortgage costs to your new mortgage. Then you will end up trying to pay the remortgage costs off and try and reduce your mortgage balance. This is not the ideal situation to find yourself in, because the more you try to pay off, the more will be added onto your mortgage and the costs will just rise all the time, not giving you much hope of ever paying it off.
Things to consider before remortgaging
When fixed interest rates are low, you should look for the lowest long term fixed rate mortgage deal available. Before arranging a fixed rate scheme you should consider all the options before making a decision. If you are planning to emigrate in the near future then you should consider a standard variable interest rate until you get your home sold. It is very important to secure your interest rate for the longest period of time that you are comfortable with. It can be anywhere from five to thirty years and it is important that you choose the best time period for your individual needs.
This advice is only beneficial if interest rates are low at the time. It is not advisable to follow this advice if interest rates are high. It is therefore recommended that you always fix your mortgage for the longest period of time possible, and only when interest rates are low. Many mortgages today are what are known as portable, which means you can move and will not have to pay any penalty. You will pay one arrangement fee at the beginning of the mortgage and one valuation fee. This will save you thousands of pounds.
If you need to borrow anything in the future, you will be able to arrange a second mortgage or a secured homeowner loan with your lender.
So now you can see that you do not need to remortgage every 2 to 3 years. You should take a longer term view and fix your mortgage rate for a longer period of time. By doing so, it will provide long term stability of mortgage payments and as you earn more; your mortgage payments become more affordable. You can use extra income to pay extra on your mortgage and reduce the term of the mortgage and save thousands of pounds.
Always ask yourself this question, “If I remortgage regularly how much additional cost will be added to my mortgage and when will I ever be able to pay off my mortgage?”