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Remortgage: Does It Make Sense at the End of Your Fixed Rate Deal?

June 04, 2012 | Comments: 0 | Views: 103

The most common type of mortgage that most people choose to go with is one that provides for a fixed rate for the first two years. Once this term is up the mortgage normally switches to a variable rate. The question then becomes what should you do when the fixed rate term ends? Most people just naturally make the assumption that they should remortgage, this may not however be the case. The bank is of course happy to have you remortgage since they make large fees when you do. Therefore it will be up to you to decide on your own if it makes sense or not.

The first thing that you have to do in order to decide if it makes sense to remortgage at the end of your fixed rate term is to determine just what your new interest rate will be. Since we currently have very low interest rates you will likely find that your rate goes down, or at least that it does not go up if you stay with your current mortgage and go onto a variable rate. In fact you will probably find that your new rate is about the same as you would get if you remortgaged.

The problem is that the reason that your variable rate will be so low is that interest rates are very low, the chances that they will remain that low for years to come are not good. Therefore you can expect that interest rates are going to rise and with them your monthly payments. In this scenario a remortgage makes a lot of sense since it allows you to lock in the lower rate. There is however the fees of a remortgage that have to be considered.

If you are going to remortgage your home it will cost you several thousand dollars, you have to make sure that the money that you save on interest will be enough to cover these fees. This will depend in large part on how long you are going to be staying in your home. The other thing to keep in mind if you choose to remortgage is that you will go back to the beginning in terms of how long it takes you to pay off your mortgage, in other words you will have thirty more years of payments in front of you. That being said if you have equity in your home the monthly payments will be less.

As a rule of thumb it makes sense to remortgage at the end of your fixed rate term if you are planning to stay in your house for more than the next two years and you think that interest rates are likely to rise. If you are planning to move in the next couple of years, the cost of a remortgage does not make sense since you won't save enough in interest to make it worthwhile. Although not really an issue right now with interest rates as low as they are but if you expect rates to go down it also does not make sense to remortgage.

Your best bet is to talk to a financial advisor and get his opinion on what you should do. Make sure that you choose an independent advisor and not the one at your bank or a mortgage broker. They have a vested interest in getting you to remortgage so their advise may be biased.

There are times when it makes sense to remortgage your home, provided of course that you can get the best remortgage deal possible.

Source: EzineArticles
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