Almost no one who owns their home sticks with the same mortgage package from start to finish. Refinancing is part and parcel of taking out a housing loan in the first place, and it makes sense for a lot of reasons.
The trick is to know when to start looking for a new deal, so here is an exploration of how to go about this, and how to time it to perfection.
Finding a mortgage lender for your refinancing
Without a specialist on your side, mortgage refinancing can feel like an uphill struggle. That means it’s worth getting in touch with experts rather than trying to navigate the market solo.
A mortgage lender like loanDepot is here to help in this scenario. Always choose a reputable lender with a good track record of serving customers successfully and providing ample support. That way, you can take the hassle out of switching.
Considering the terms of your current loan
Your refinancing timing will largely be determined by what obligations you face as part of your existing mortgage agreement.
In the case that you’re signed up to a fixed rate deal, you may be penalized if you move to a new lender before the required initial repayment period has been completed.
Early repayment fees should be clearly explained in your mortgage documentation, so check this or contact your lender for more information.
Of course, if your mortgage is not fixed in any way and there are no other impositions on you as a customer, then refinancing is a no-brainer.
Looking at your financial situation
Another reason to refinance is if you’re in a much stronger financial position today than you were when you first took out your mortgage.
If your credit score has improved, your household income has risen, and you’ve paid down other debts, then lenders will be able to offer up products with lower interest rates than would have previously been available to you.
The firmer the foundations of your finances, the cheaper it will be to acquire a loan. Of course, if things have gone in the other direction, then you might not want to upset the applecart by applying to refinance.
Luckily it’s easy to check your credit score, as this is a great overall indicator of the likelihood that a new mortgage will be approved. With this info to hand, and of course, the advice of a lender or broker, you’ll have a straightforward refinancing experience if you decide to pull the trigger.
Reviewing the wider market
Lenders are largely interested in the aspects of individual customers when calculating rates for refinancing packages, but that doesn’t mean external pressures don’t impact the amount of interest being charged.
This is where an element of timing your move well comes into play. If interest rates are generally low, or at least lower than when you took out your mortgage, then refinancing makes sense. If they are currently climbing, it’s also the right time to strike, as this is not a market that shifts especially rapidly in either direction.
On the other hand, if average rates are higher than the deal you’re committed to right now, then staying put rather than upping sticks is probably for the best.
Clearly, this is a case in which expert advice is again invaluable. You can also combine this with your own rates research to get a robust overview.
Assessing your outgoings
Anyone with a mortgage will find that their monthly repayments are the single biggest expense they have to cope with throughout the year.
This means that if your household budget is being squeezed and you are struggling to get by with what little income is left over, refinancing could give you a lot more wiggle room.
What you need to realize is that even seemingly small changes in the amount of interest you’re charged can have a dramatic impact on monthly repayments. Shaving a few tenths of a percentage point off your agreement will net you significant savings, giving you room to breathe when the purse strings might be tightening in other areas.
Any opportunity to take the more frugal path is worth seizing, even if your income dramatically eclipses your outgoings each month. But for those who are feeling the pinch, looking at refinancing your mortgage is doubly valuable as a strategy.
Investigating equity release
Even if you are happy with your current mortgage deal, there’s another motivation behind refinancing, and that’s equity release.
This simply means borrowing more against the value of your home, giving you cash to use right now, and letting you repay this over the coming years.
It’s an alternative to getting a personal loan, and could be a savvy move if the interest on your mortgage is lower than equivalent packages elsewhere.
Equity release isn’t for everyone, and does mean that you’ll end up paying more interest and often have to extend your mortgage repayment period to accommodate the extra borrowing. Even so, it can help you to finance remodeling, renovations, and other expensive work.
Thinking about the future
Lastly, you cannot make a fitting decision about whether or not to refinance if you don’t also weigh up your options for the years to come.
If you are content in your current property and you intend to stay there for the foreseeable, then going ahead with a refinancing maneuver makes sense. If you are thinking of selling up and moving elsewhere sooner rather than later, then going through the process of refinancing right now could leave you with additional admin that you’ll only have to re-do soon after.
Final thoughts
Being on the ball regarding your mortgage is not just for people who are finance wizards; it’s a worthwhile move for all homeowners, and one that could transform your circumstances significantly.
While you can go it alone, it’s better to work with a trusted lender or broker. That way, you’ll avoid pitfalls and find refinancing deals that encompass everything you need.
