Remortgages

Remortgage is a financial product wherein a new lender provides funds to close an existing mortgage. The term remortgage is used more often in the UK, than elsewhere. The product is similar to refinance. There are a few minor differences. Refinance can be obtained from an existing lender or a new lender, whereas remortgage loan is essentially obtained from a new lender.

Both refinance, and remortgage result in a fresh mortgage loan. The object of taking a refinance is to revise the terms and conditions of the mortgage contract. This may be because of changes in prevailing conditions. Therefore, if the interest rates come down considerably, approaching the existing lender for refinancing mortgage is what most borrowers do. The procedure involves less paperwork and fewer charges since refinance can be availed from the same lender.

Unlike this, in a remortgage the borrower's application for mortgage loan is essentially taken as a new application with a new lender. Borrowers opt to remortgage their properties when they are for some reason unable to continue the contracts with existing lenders.

Therefore, remortgages are not essentially taken when the interest rates come down, or when the lenders offer longer repayment period that brings down installments, and improves borrowers liquidity. Borrowers may even opt for remortgages if the new lender is willing to offer more amount as mortgage loan when compared to the existing lender. Remortgage is also the product, which the borrowers look to when they have any disagreement with an existing lender. Therefore, remortgages do not essentially result in better terms and conditions, though mostly they do.

Since the process is similar to any other new mortgage, the borrower has to apply for the remortgage loan, provide details of income, expenditure, and any other outstanding liabilities. The lender verifies these, apart from the title as well as the value of the property before sanctioning the remortgage loan.

Likewise, there are costs involved in processing the remortgage loan. Like any other new loan, a fresh valuation of the property, credit record verification, and legal expenses have to be incurred by the borrower. Apart from this, the existing lender may impose some penalties for prepayment of the loan. All these may add up to the cost of the loan, and have an effect equal to mortgage loan granted at higher interest rate.

The equity that is built by the borrower over the years in the property can be withdrawn through remortgage process. Such withdrawal of equity is also possible with refinancing. Therefore, remortgage and refinancing are almost alike. Both result in execution of a new lien document favoring the lender. The monies obtained like this can be used for debt consolidation, or to buy new investment properties.

One minor difference between remortgage and refinance is that in refinancing, the existing lender may choose to refinance only one of the two or more mortgages on the same property. A borrower may have taken more than one mortgage on the same property. Therefore, refinance is possible exclusively for the second mortgages. However, remortgage is not possible with such variation.

To understand this better, consider the example of a borrower who takes a new mortgage from lender with interest at the rate of 10 percent per annum. Five years down the lane, the borrower takes a second mortgage that carries interest at 8 percent per annum. Ten years from then, the borrower may take another mortgage; this time the interest rate may be 12 percent. Thereafter, the interest rates may start slipping. The borrower may be offered refinance for the last mortgage, bringing it down to 10 percent, if that is the prevailing interest rate, without prejudice to the extremely favorable interest rate in the intermediate second mortgage. This is not possible in remortgage deals.

The entire procedure may take about four to six weeks, whereas refinance from same lender can be obtained in less than a couple of weeks. Loans professionals may, however, be able to reduce the time taken to get remortgage loan. There are ample online remortgage providers, clearly mentioning remortgage rates and other conditions. So it is up to the borrower to shop and compare remortgage products.