Thursday, October 13, 2011

5 Assumptions to Avoid when Re-mortgaging

Remortgaging a property can seem like the perfect solution when finances are tight, but is it always the best course of action for homeowners? Although releasing equity in a property can usually generate cash to satisfy other debts and expenses, there are a number of circumstances in which remortgaging does not necessarily pay off. Using specially designed mortgage calculators, such as the free tool provided by, homeowners can work out exactly how much they can save by switching to a new lender. Listed below are five common assumptions to avoid when remortgaging.

1. Acceptance is automatic

It is often assumed by homeowners that acquiring a new mortgage in place of an existing home loan is a relatively straightforward, trivial matter. Unfortunately, this is rarely the case. Remortgaging is almost always subject to the same rules, laws and checks as new mortgages. Thus, acceptance for remortgaging should never be taken for granted.

While the economies and housing markets of the world remain in a state of flux, it is entirely possible that a homeowner who was approved for a mortgage in the first instance might fail to meet the criteria for remortgaging several years later.

2. Affordability is not a major concern

Another popular assumption among homeowners is that remortgaging is always affordable; indeed, it is usually assumed that remortgaging is inherently less costly than a new mortgage. As with many assumptions in life, affordability cannot be guaranteed when it comes to remortgaging.

The economic climate is particularly bleak at present and any attempts to predict how interest rates and house prices will change in the coming months are at best unreliable. As rates and values change, so too does the affordability of remortgaging.

3. Remortgaging a property is quick and simple

If a homeowner applies for a new mortgage with their existing lender, a quick, simple and relatively hassle-free remortgaging process is not inconceivable. Not necessarily likely, but certainly not inconceivable.

When choosing a different lender, however, remortgaging can become a slow, complicated process and one drawn out by legalities, technicalities, credit checks and so on. In short, homeowners should never assume that remortgaging is quick and simple.

4. Remortgaging is subject to no added fees or expenses

As for the speed and ease with which a property can be remortgaged, homeowners who stay with an existing lender but choose a different deal can enjoy minimal added fees and expenses.

Homeowners who shop around and find new lenders, meanwhile, are likely to encounter a number of additional expenses, including legal costs, admin fees, surveyor's fees and so on.

5. Remortgaging does not reflect the state of the economy or realty market

A strikingly odd assumption held by many a homeowner is that remortgaging is somehow immune from all other aspects of the economy. Unfortunately, or perhaps fortunately, remortgaging is no less influenced by economic factors than a new, standard mortgage.

One consequence of this is negative equity, which occurs when the value of a property is considered to be less than the amount of debt attached to it. As house prices continue to fall, many homeowners are realizing the effects of negative equity, which can preclude any hope of acquiring a new mortgage.

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