loan search for homeowners

Many Brits are remortgaging their homes in the current comparatively low rate loan market.  The Bank of England has been gradually easing its base rate for several months.  This is the rate it charges to banks and lenders who loan funds to consumers.  Many lenders choose to pass on the funding cuts to consumers, which has made many loan products more affordable. 

People remortgage for different reasons.  Some people use a low rate mortgage as an opportunity to switch from a high interest fixed rate loan to a low rate variable mortgage.  Variable rate mortgages generally fluctuate based on the funding rate from the Bank of England.  Customers that expect the funding rate to remain low enjoy the benefits of a variable rate mortgage.  On the contrary, customers that are stuck in variable rate products when funding rates go up, sometimes look to get into more predictable fixed rate plans.  Others simply want to trade in a higher fixed rate plan for a lower one.

Remortgaging is also used sometimes as a way to take equity out of the home.  Some people want to take out the equity they have built up in their house and turn it into cash.  Equity is the difference between the market value of the home and the current mortgage obligations.  Remortgaging to take on a higher first loan amount is a common technique used by some to take advantage of the relatively low interest rates from mortgages, as compared to other unsecured debt.

Remortgages for a higher amount pay off the initial loan and then provide the extra funds to the debtor.  Some use the extra funds to pay off their higher rate unsecured debt.  This is a form of debt consolidation.  Others may use the equity funds, or loan funds, to carry out home improvements, start a business, go on a dream holiday, or some other purpose.  It is important for people to understand that the equity has basically been borrowed in a different form. 

People that remortgage to take equity out of their home and spend it on a non-essential item sometimes do not consider that they have really borrowed more money.  Most consumers are not immediately aware of all the different loan products and options available to them in the lending market.  This is why it is usually a good idea to work with a loan specialist or broker to explore opportunities.  These experts are usually more equipped to take a consumer’s individual circumstances and match those up with the best loan and mortgage products, terms, providers, and rates etc.  

Remortgaging can be a great opportunity for significant interest savings over the life of a home loan.  However, it may not necessarily be best for everyone.  Even if there might be a better rate available for a customer, he must consider the up front costs to take on the new loan.  A borrower that is likely to move within a short timeframe may not be around long enough to recoup the loan costs from monthly interest savings.

Sarah Mattingley is the author of this remortgages article.

This article does not represent ‘financial advice’ as each persons individual requirements will be unique to their needs. If there is something in the article which you which to rely on then please check those details with any person with whom you arrange a financial product or service.

The views in this article represent those of the author and not those of Netbasic Limited.