For most people, the mortgage on their home is the most significant financial commitment they’ll make in their lives, and as such it’s vital for it to be undertaken as efficiently and cost effectively as possible. Although it pays to shop around for a good deal when first taking out a mortgage, the process doesn’t end there. Throughout the span of the loan, it can be restructured, or remortgaged, to improve the terms and take into account different financial conditions at each stage of the holders life.
To take the best advantage of the benefits such a remortgage can offer, you need to be clear about what you want to achieve by refinancing in the first place, and here are the most common scenarios for embarking on what can be an involved process.
Reducing the Interest Rate
No one likes to pay out money unnecessarily, but sticking with your original home loan terms can mean you’re paying more in interest to service the mortgage than you need to. It could be that your mortgage deal is no longer competitive when compared to the latest offers on the market, and taking advantage of a lower rate deal could reduce your payments even if it’s just for the length of an introductory offer that lasts a couple of years. Even in today’s tough credit market, mortgage companies are keen to take on new customers with a solid credit history and a decent amount of equity in their property, and so there are some attractive low interest deals to be found by switching mortgage provider.
Alternatively, many people find they can command a lower interest rate even with their existing mortgage company once they’ve made a few years’ repayments without trouble and have shown to be responsible borrowers — there’s certainly no harm in asking your current lender if they have a better deal to offer, and if you can drop a hint or two that another company is interested in your custom then all the better.
Shortening the Mortgage Term
Another popular reason to renegotiate a mortgage deal is to take advantage of lower interest rates to shorten the repayment term of the loan. If your mortgage rate is variable and tracks the base rate, then today’s historically low rates could see your monthly repayments set at a much lower amount than you at first anticipated. While you could simply enjoy having a little more money in your pocket at the end of each month, you could also choose to stick at the original higher repayment figure, with more of it going towards reducing the amount you owe rather than servicing the interest. Paying your mortgage down more quickly in this way will reduce the overall amount of interest you pay, and will also free you from the burden of repayments earlier in your life than you originally planned.
Switching from an Adjustable Rate to A Fixed Deal
Interest rates today are at very low levels compared to long term trends. If your mortgage deal is set to track changes in the central interest rate then you’ll probably be paying an exceptionally low rate today. This happy situation is unlikely to last indefinitely though, but by converting your deal into a fixed rate mortgage you can ‘lock in’ today’s low rates for a period of years, whatever happens in the wider economy. Deciding when to take the plunge and switch to a fixed rate deal is always something of a gamble, but if you’re offered an attractive deal that will last for a few years at least, then now is probably a good time to make the move as rates can only really go upwards from today’s levels.
Releasing Equity in Your Home
If you bought your home a number of years ago, then the chances are it’s worth substantially more today than the amount that’s still outstanding on your mortgage. If this is the case, you may be tempted to release some of this stored value in the form of cash by restructuring your mortgage and borrowing a little extra. Although this will usually mean extending your loan term, and maybe also increasing your monthly repayments, if you have a need for a lump sum then borrowing against your property is likely to be much less expensive than other forms of finance, especially with the low interest rates prevailing today.
And Lastly, Debt Consolidation
It’s all too easy to build up high levels of debt on credit cards, but unfortunately this form of credit is amongst the most expensive available. If you have a large debt on cards and other high-interest forms of unsecured finance, it can make a lot of sense to transfer this debt onto your home and enjoy cheaper repayments. Be very careful before doing this though – be sure that you can easily afford your new repayments, or you could be putting your home at risk of repossession if you get into financial difficulties down the line.
Before embarking on a home remortgage, it’s essential to take sound financial advice from a mortgage professional. However, if you’re in the happy situation of having equity in your home alongside a reasonable credit rating, then refinancing your property can be one of the most effective ways towards more comfortable financial circumstances for years to come.
