Main motivation: Switching to a superior deal in terms of rate of interest
Imagine you have mortgaged your property and opted for fixed monthly obligation. The fixed monthly obligation are always very throbbing, especially when you have to drop your holidays plans with your family just because your monthly cash inflows to the tune of 30 to 40% are eaten up by fixed monthly obligation of
mortgage. In such a situation, option of remortgaging with some other financial institutions always hits your mind. The
Rationale Behind Remortgage is to achieve a better proposition as far as the rate of interest is concerned and thereby save on monthly repayments.
Undoubtedly, the idea of remortgaging is a fabulous one, but this coin has another face as well, which has to be looked into very analytically before entering into any such deal.
Remortgaging does not only carry benefits, but it has some costs also. Here we are referring to the penalties or charges for leaving the existing loan early and also the costs associated with the proposed new loan.
Analyzing the deal:
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Step 1: Find out what are the savings due to proposed change in rate of interest.
- Step 2: Find the cost attached to leaving a loan early, the costs like penalties, charges and any other charge as per the agreement.
- Step 3: Find out the costs attached to the new loan like processing fee, revaluation of house etc.
- Step 4: Do following calculation i.e. Gain / Loss = Step 1 – Step 2 – Step 3.
Positive outcome represents gain and deal is doable and negative outcome represents loss and the deal should not be done or there is a need to look for even competitive deal.
Traditionally
remortgaging was a trend as property holder sought after pulling out equity from their assets to finance their home improvement or holidays. In the recent economic atmosphere with crisis like sub prime mortgages and sluggish house values and increasing interest rates, the trend of remortgaging is not a common phenomenon and it is now driven more by necessity than by comfort.
