Remortgaging: The Wise Thing to Do

For the uninformed, remortgaging is the process of paying off the existing mortgage with the proceeds of a new mortgage using the same property as security. The need to remortgage arises out of a number of reasons. It is also advisable under the current circumstances when the realty landscape has changed. The smart investor is always on the lookout for better deals and it always pays to be smart, doesn't it?

While the ordinary people are worrying themselves sick over the economic scenario, the smart investor is already looking out for that remortgage. Real estate prices have fallen and lenders desperate to meet year end targets are expected to launch attractive schemes. The time seems just right for that remortgage. A remortgage can help in the following ways:

Reduce Cash Flow

Cash Flow is the balance of cash at the end of a specific period of time. Remortgaging with a lower interest rate can reduce your monthly installments and eventually your yearly cash flow.

Get Better Loan to Value

Loan to Value (LTV) is the mathematical calculation that determines the risk in a mortgage. It is calculated as LTV = Amount of Loan / Amount of the property. Suppose the value of the property is $200000 and the amount granted by the bank is 1500000. Then LTV is calculated as 1500000/2000000 = 0.75 or 75%. Now suppose if you go for a remortgage and since the price of the property has reduced, you get a better LTV. Usually full financing is only available for customers with a rock solid credit history. But in the above scenario in the present conditions the remortgage could result in a full financing.

Release Equity

A remortgage can also help release equity associated with the mortgage. If the principal is reduced, the interest will also be lower and thus lower cash flow.

How to Remortgage

A good place to start is usually with the existing lender. Special offers or lower rates will be available for current customers who want to remortgage. But shop around. There might be better deals in the market because the remortgage marketplace is very competitive and there are lots of great rates available.

The steps involved in securing a remortgage are:

1. The lender will want to know the value of your home, usually by having a professional appraiser inspect the property.

2. You will need to complete a fresh loan application.

3. The lender will require conveyance work to secure a title report.

4. A solicitor will be engaged to ensure your previous lender is paid in full and to release any additional funds directly to you.

Check out the various options available for fixed as well as floating interest rates. Under the volatile conditions of the current economy, the fixed rates will be higher but might be stable for the near future. If you have a high mortgage or a longer time period, it is always advisable to go in for fixed rates. At the same time, the floating rates will keep the out goings less assuming the economy stabilizes for a while.

Even though the economic conditions do not look encouraging, the time is just right to reduce your mortgage and save a considerable amount of money.