A remortgage is a process that replaces an existing mortgage loan with a new loan from a different lender. The new lender repays the existing mortgage debt to the original loan provider. The borrower is then left with just one mortgage loan, repayable to the new lender.
The terms remortgage and refinance are sometimes confused. While the two loan processes can be similar, there is one major difference. A remortgage involves accepting a loan from a new lender, while a refinance loan can be provided by the existing lender or a new mortgage provider.
Borrowers consider remortgaging for various reasons. Often, the purpose involves saving money. Securing a new mortgage, at a lower interest rate than is afforded by the existing loan, may reduce the borrower’s monthly repayments. Obtaining a lower rate may also reduce the total amount of money the borrower must repay over the full life of the loan.
Remortgaging can also serve to release equity in the borrower’s home. In real estate terms, equity is the difference between the market value of a home and the amount the borrower still owes on it. When an individual’s property increases in value, equity is built. Likewise, equity is increased as the borrower repays the mortgage loan. For example, if a borrower’s home is worth $150,000 and he or she has repaid $30,000, the borrower has $30,000 in equity. A borrower can obtain this equity money by remortgaging and borrowing an amount that exceeds the current mortgage debt.
Obtaining a remortgage is fairly simple. Generally, the process is straightforward and similar to obtaining any other mortgage loan. The new lender reviews the borrower’s application and asks for certain related paperwork. Remortgage paperwork typically includes proof of income, debts, and expenditures.
A home valuation is usually required as well. In some cases, the valuation may be less intensive than the type required for an initial loan and the surveyor may simply view the outside of the borrower’s home and ask a few pertinent questions. In other cases, a full valuation is required.
There are certain fees involved in a remortgage. Often, borrowers are required to pay valuation and legal fees. Many lenders charge loan-processing fees as well. The amounts charged for a remortgage vary from lender to lender.
In general, a remortgage can be accomplished in four to six weeks or less. The length of this process depends on the lender and the specific circumstances surrounding the property being remortgaged. However, there are some lenders who specialize in rapid remortgages and promise to complete the process in a week or less.