The term remortgage and refinance do not mean the same thing. While a remortgage replaces an existing mortgage from a new lender, refinancing is provided by your existing mortgage lender. While in refinancing you are simply switching from one product to another with the same lender; a remortgage involves the removal of one legal claim over a property and its substitution with another in favor of a new lender.
Homeowners can also use the equity in their home for remortgage. For example, if a borrower's home is worth $230,000 and he or she has repaid $100,000, the borrower has $100,000 in equity. A borrower can obtain this equity money by remortgaging from any lender—it is also known as a home-equity loan. Before obtaining an additional loan against one’s equity in the home one must remember that there would be:
1. Attorney fees.
2. Home valuation.
3. Perhaps a higher rate of interest.
4. A much shorter period to repay the loan.
A remortgage loan from a new lender would also involve fees, credit check, income verification, and a personal interview among formalities. The new loan, though, can also help renegotiating better terms of the mortgage, yet, the closing costs must be taken into account. Usually people combine the closing costs with the mortgage thereby increasing the “effective” rate of interest. One must shop around for the best deal and hire a trusted attorney to protect from the mortgage frauds that American mortgage market is at present reeling from. Homeowners may need to switch lenders for various reasons, including lowering the size of repayments, to pay off a mortgage earlier, to raise capital, or to consolidate other debts.
Remortgage Pitfalls
1. The borrower should not enter into a commitment for a very large amount for a long period without a justified need for it. It would be foolish to do so for remodeling your kitchen.
2. There may be a prepayment penalty on your first mortgage or on the new one which is usually waived only if you are selling your home.
3. Search the internet for the best deals especially from lenders who specialize in such loans.
Adverse credit loan remortgage: Help is on its way.
Due to the plummeting housing prices Adverse credit has become one of the most common problems that people are facing these days. Remember the lender is as nervous and have at stake as much as the homeowners. So if the present lender is unwilling for renegotiating the current mortgage, find a new one. The most recent Housing Bill just passed by the U.S. Congress will also help the homeowners who are currently in default and in danger of foreclosures. Government is going to subsidize their loans under certain conditions. Government has its own political motive to stabilize the financial institutions in the larger interest of the U.S. economy. The main provisions of this bill, which President Bush is likely to sign, are:
1. Emergency financing to mortgage titans Fannie Mae and Freddie Mac, and setting up a $300-billion fund to help hundreds of thousands of troubled homeowners.
2. Fannie and Freddie could draw on a temporary line of U.S. Treasury credit or the government could buy shares in them, if they ran into trouble.
3. The $300-billion fund under the Federal Housing Administration to help distressed homeowners get more affordable, government-backed mortgages and get out from under exotic mortgages they cannot afford.
4. About $4 billion in grants to communities to help them buy and repair foreclosed homes.
5. Tax breaks to spur home-buying; sets up the first national licensing system for mortgage brokers and loan officers; and raises the limit on the size of mortgages that federal agencies can guarantee.
6. Creates a new regulator for the shareholder-owned companies with sharper teeth than the existing one.
However, the law would not take effect until October 1 and it might not be in full operation until 2009. The success of the temporary fund will depend on lenders' willingness to accept losses on original loans to shift overstretched borrowers into new loans. An estimated 400,000 families could be helped by the program.
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