If you pay off an old mortgage loan with money from a new mortgage loan, using the same real estate as security for both loans, this is known as remortgaging. Remortgaging is typically made to get rid of an old loan in favor of a new loan with better conditions, such as lower interest rate. It is thus a form of debt refinancing. Remortgaging can also be used as an alternative to a second mortgage, provided that there is enough collateral in the real estate.
Remortgaging is usually a quicker process if your stick with the same lender as before, and you may also be able to avoid some fees that are typically associated with remortgaging since you are already a client and all the property surveys were done when you obtained the old mortgage.
Sometimes, remortgaging by switching to a new lender is worth the extra time, effort and fees since the new lender is offering a much better deal. Always take all costs and savings into account before you make a decision.
If you are offered a really good deal by another lender, don’t hesitate to contact your current lender to see how eager they are to keep you as a client. Maybe they can match the offer?
Lower monthly payments or debt free quicker?
If you get the interest rate down by remortgaging, you have an important decision to make. Do you want to keep making the same size monthly payments as before, and thus pay off the principal quicker? Or do you want to make a smaller monthly payment to have more room in your budget for other things?
Tips for the negotiation
- Arm yourself with information about the interest rates (and other important costs) offered by other lenders for similar mortgage loans.
- See if you can negotiate down the application fee with the new lender, or make the new lender pay for at least some of your exit fees.
- If the new lender is eager enough to have you, you might be able to negotiate down the fees associated with real estate appraisal, ownership check, liens check, etc.
- When you are negotiating the terms of the remortgaging, don’t forget to bring up things that speak in your favor. A low loan-to-value ratio for the real estate is of course great, but your low debt-to-income ratio is also worth mentioning since it increases your creditworthiness. Having a great credit report and solid employment history can also be beneficial.
- If you are married, your financial situation as a family will be assessed, so be prepared for this. Also be aware that some lenders will want to assess any live-in spouse, married or not.