It is fairly common these days to remortgage your home; most people will do it at some point in time. There are a lot of advantages to remortgaging although most people do it for the wrong reasons. Most people will refinance their mortgage in order to take the equity out of their house. If you need the money this can be a good option but the best reason to remortgage your home is actually so that you can save money.
The way that you would save money by remortgaging your home is by reducing the amount of interest that you would have to pay. There are a couple of different ways that you can do this. The first is to reduce the interest rate that you have to pay. For a lot of people this is fairly easy to do since there is a pretty good chance that you will be able to get a better rate than you got when you first took out the mortgage. Even a small reduction in interest rate can mean huge savings.
The reason that you can usually get a better interest rate than you did when you first took out your mortgage is that there is a pretty good chance that your credit has improved since then. Obviously if you had very good credit back then this will not be an issue, there are however a lot of people who took out mortgages when they had less than perfect credit. If this is the case and you have been making your mortgage payments on time for a few years there is a pretty good chance that your credit has improved and you will be able to remortgage and get a better rate.
The other reason that your interest rate will likely go down is that as you build up equity in your house you become less of a risk for the bank. Not only is it more likely that you will keep making the payments if you have equity built up in your house there are a lot more options if you do run into trouble and are no longer able to make the payments. As a result most lenders are willing to give you a better interest rate if you have a lot of equity. In addition once you have enough equity built up you will not have to keep paying private mortgage insurance which will reduce the amount that you have to pay as well. As a rule once you have more than twenty percent equity in your house it is a good idea to remortgage.
While you can save quite a bit of money by remortgaging to get a better interest rate the real savings is in reducing the amount of time that it takes you to pay off the mortgage. The difference in interest that you have to pay on a thirty year mortgage as compared to a fifteen year mortgage is huge; it will easily be in the tens of thousands of dollars. Most people will of course take the longer term because it gives them a lower monthly payment but they will end up paying for it in the long run.
Remortgaging to switch from a thirty year mortgage to a fifteen year one is not nearly as hard as big of a deal as you may think that it would be. The difference in the monthly payments is not that big, usually it is on the order of a couple of hundred dollars a month. This is primarily because of the fact that so much more of the money that you pay each month goes towards paying down the principal and not towards interest. With a thirty year mortgage a big chunk of what you pay each month goes towards interest.
Over time most people see their income rise as they move up in their careers which should make it possible to pay the higher amount each month. Few people will do this because they would rather spend the money on other things. While this is understandable it is not really the best use of your money. The savings that you will get from switching to a fifteen year mortgage are huge. You will also have the benefit of getting your mortgage paid off a lot faster at which point you will have a lot more money available each month to spend on whatever you want.
Most people who remortgage their home will do so in order to reduce the amount that they have to pay each month. This is understandable as we could all benefit from having more money available; the problem is that in the long run it will cost you a fortune. People have a tendency to seriously underestimate how much they pay in interest when they buy a house. Because of the large amount that you are borrowing and the length of time that you are borrowing it for it is important that you do whatever you can to reduce the interest rate or the length of time that it will take you to pay it off. Even if you can only reduce it by a small amount the savings can be huge in the long run.
If you are thinking about remortgaging in order to reduce the interest that you pay it is a good idea to talk to a financial advisor. It is important to make sure that you understand how the changes will affect your finances as a whole, in particular how it will affect your tax situation. You also want to make sure that you will actually save money by remortgaging your house. There are some pretty substantial fees involved in a remortgage so you have to make sure that the amount that you save will exceed these. Unless your mortgage is near paid off or you plan to move in the next couple of years it should not be an issue but it is still a good idea to check and make sure.