Are you considering a Remortgage? This term refers to switching your current mortgage in exchange for an entirely new one, typically at a lower interest rate or lower monthly payment. For some who have an adjustable rate mortgage that is about to reset to a higher rate, this may be the only way to save the home. People often don’t expect an adjustable rate mortgage to reset as high as it might, and the new monthly payment can actually be out of their budget. By using a remortgage to keep that rate low, they can then afford the house payment and avoid reposession.
But for some, a remortgage is a wise financial decision simply because of the money it saves, regardless of whether or not you can actually afford your current mortgage. If you can save a hundred or two hundred dollars every month on your mortgage, you can use this money in many other ways to benefit yourself financially. Let’s first go over some details about a remortgage so you understand how this works. To set aside your original mortgage you’re charged a prepayment penalty which should be spelled out in your current mortgage. These are usually points, which are 1% of your mortgage amount.
You also need to pay closing costs during a remortgage. All of these costs usually add up a few thousand dollars. However if you’re eligible for a lower mortgage rate you usually save a few hundred dollars off your payment every month, so after a year or two you reach what is called a breakeven point. This is why your savings equals the amount you paid up front for your remortgage, so all your savings after this point are yours alone.
So how can this process of a remortgage benefit you financially? Obviously that money you save can be used to pay down other debt such as car loans, credit cards, student loans, and so on in order to save the interest amounts you would be paying for those loans. You can also take that money you save every month and put it in a savings account or use to buy certificates of deposit or to invest, so that you’re actually earning money.
Some also take the money they save with their remortgage and use it to keep paying the same amount on their mortgage, even though they’ve lowered the rate and monthly payment. This means that you’re now overpaying your mortgage which pays down the interest and the principal that much sooner. You may even pay off your mortgage a few years early if you do this! So you see that there are many options to you when you save money through a remortgage. The key is to take the initiative not just for the refinancing but to make that money work for you as well.
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How a Remortgage Can Help You Financially