Quora Answer: How Does a Remortgage Work, & What are the Risks Involved?

The following is my answer to a Quora question: “How does a remortgage work, and what are the risks involved?”

In finance, when we say remortgage, what we refer to is the paying off of one mortgage, with the proceeds from a new mortgage, but using the same property as security.  It is refinancing on better terms.  What it is not, is a second mortgage, which is, in effect, taking out a second loan with the same security; or the switching from one mortgage contract to another, within the same lender, often at less favourable terms.

The primary purpose of remortgaging is to secure a more favourable interest rate.  People may also remortgage to reduce the payment period, lengthen the payment period for smaller installments, to consolidate debt, or simply to acquire some liquidity.  Remortgaging is a serious consideration, and should involve a financial advisor or a suitable financial professional.  It may involve upfront costs that would affect liquidity.  Also, there is the danger of shortening the payment period only for you to suffer an adverse financial hit.  There are a lot of considerations involved.