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If you are aware of the workings of the property market, you will know that it is fairly common for homeowners to shift from one mortgage provider to another during the tenor of the loan. This phenomenon of replacing an ongoing mortgage with another is better known as remortgaging.
The primary reason for remortgaging is to secure an overall better deal. In due time, a borrower may decide to move to a scheme with a more competitive interest rate or greater flexibility in terms of making partial/early payments. Then again, he might be changing banks; hence, transferring his relationship from one financial institution to another.
Another reason could be the need for increased borrowing which may not necessarily be supported by the existing lender. As long as the value of your home has risen considerably, remortgaging to a new lender might actually enable you to raise additional money at cheaper rates.
The ability to remortgage is primarily based on an individual’s circumstances. Moreover, the options for expatriates might differ from those of UAE nationals. Hence, one needs to consider several factors before taking the plunge. Below is a list of certain situations under which a remortgage is not warranted:
• Drop in the value of your property – If your equity has evaporated since you took out the loan despite making repayments regularly, then you might be in an ugly credit position. A remortgage in a scenario like this is out of the question.
• High redemption penalty – Lenders typically charge between zero and five percent of the outstanding mortgage in the case of an early repayment. If the cost to free yourself from your current deal is unusually high, it is sensible to drop the idea for the time being.
• Set-up costs – While the new deal might look attractive initially, it is important to consider significant set-up costs such as arrangement and valuation fees as well as charges for registration of the mortgage with the Land Department.
• Change in personal circumstances – With the introduction of stricter mortgage rules over the years, a decline in your credit score or change in financial position for the worse might mean having to stay where you are.
• Remortgaging often considered by homeowners with the aim of saving money
• Its options differ from one person to another, e.g. expats and UAE nationals
• Pros and cons exist so thoroughly do your homework before taking the plunge
Source: Priyanka Wade, Special to Properties
The writer is a freelancer