The process of refinancing can save you hundreds of dollars. However, there are plenty of factors you should be aware of in order to make sure you’re getting the most effective deal.
Why should I refinance my mortgage?
When you first started taking out the mortgage you may have gotten an amazing deal. However, over time the market for mortgages changes and new offers become more readily available. This means that there could be an offer that is better for you right now, and could mean you save hundreds of pounds.
There is no need to switch lenders.
Be sure to verify whether there are any arrangement or product-related fees associated with any mortgages you’re considering looking at or if you’re closing your mortgage early, you should be aware of any early repayment fees from your current lender.
These costs can increase the cost of remortgaging , and could make remortgaging more costly than remaining on the current deal.
When is the best time to remortgage?
You are able to refinance anytime. However, if you’re not nearing the end of your discount or fixed rate, you may be required to pay an early fee for repayment.
The majority of people refinance at the close of their fixed or discount rate period as this is the time when your mortgage could end up being an expensive deal.
Before making a switch, make sure to research the cost.
Some lenders may offer fee-free deals to lure you in however if they don’t then you’ll be charged administrative, legal and valuation expenses to cover.
You can utilize the annual Percentage Rate Cost (APRC) to assist you evaluate deals.
It is a method of calculating interest rates. APRC is a method of formulating interest rates by incorporating mortgage-related charges into the calculation, providing you with an opportunity to compare mortgage rates.
It’s possible that a savings opportunity could be a loss for you If you don’t conduct the math first.
Reduce your loan-to-value in order to obtain an improved rate
Every mortgage contract is subject to a limit on the amount you can borrow in relation to the current worth of your property.
It is displayed as an amount and is known as the ‘loan-to value’.
If you decide to remortgage after fixed term, the less loan-to-value you require, the better deals are available to you. This could result in lower mortgage rates.
How do you calculate your loan-to-value
Divide the outstanding loan amount by the current value of your home.
Multiply the sum by 100.
Example
Your outstanding mortgage balance is PS150,000.
Your lender believes that your home is worth PS200,000.
150,000 divided by 200 000 = 0.75
0.75 100 x 0.75 = 75 So your loan-to-value is 75%..
Be sure to verify related fees and charges.
Your lender’s valuation
If you are applying for a loan the appraisal of the lender could be based on the exterior of the house in the direction of the road.
If you believe the value isn’t enough – and you’re missing out on higher rates because of it, request your lender for a reconsideration.
In order to support your claim to prove your case, you can provide proof of the price at which you sold similar properties in your region and, should it be necessary, provide the price of any home improvement you’ve made.
Remortgaging for a better rate of interest
If you apply for a new loan typically, you will receive an initial deal.
Most likely, it’s an affordable fixed or discounted rate or a lower tracker rate in the first couple of years on your mortgage.
The typical duration of introduction deals is up to five years.
After the deal is over at the end of the deal, you’ll likely be transferred to your bank’s variable-rate standard, which is usually higher than any other rates you may find elsewhere.
When your initial period is over, look at the market to determine whether switching to a different mortgage will help you save money.
If you have only just a little left to pay off your mortgage, the savings you can get from switching could not be enough to be worth it.
Mortgages that allow for greater flexibility
It can also allow you get a more flexible loan, for instance when you wish to pay more.
Perhaps you’d like to change to an offset mortgage or current account mortgage, in which you can use your savings to lower the amount of interest you have to pay for a period of time or permanently and also have the option to draw them back in the event that you require they.
Consolidating debt with a mortgage
If you’re in a significant amount of debt, you may be tempted to take out additional cash and use it to pay off your other loans.
Although interest rates on mortgages are typically lower than personal loans and are less than credit cards, you could end up paying more overall , if the loan is for a longer time.
Instead of adding the loan on top of your loan, you can try to prioritize and clear your debts separately.
Look around for mortgage offers
Remember:
Comparative websites will not all give you the identical results, so make sure to use multiple sites before making a decision.
It’s also essential to conduct some research on the kind of product and features that you require prior to making a purchase or switching suppliers.
Be cautious about refinancing and signing a new contract with high early repayment fees in the event that you’re planning to move home in the near future.
The majority of mortgages are now “portable that is to say they can be transferred to a new home. However, moving is considered an application for a new mortgage, so you must meet the lender’s affordability requirements as well as other requirements to be considered to get the loan.
If you fail the tests, the only alternative is to contact other lenders, which could result in paying the early repayment fee of the lender you currently have.
“Porting” a mortgage could typically mean that only the current balance is still on the discount or fixed-rate deal, so you must choose a different option for any additional borrowing to move. This new one is not likely to be compatible with the terms of the current deal.
If you are certain that you’re likely to relocate within the early payment period of any deal, then you might want to look into offers that have low or no early repayment fees, giving the buyer more flexibility to compare lenders once it is time to move.
Ask for advice
A consultation with a certified professional can provide you with additional protection in the event that the loan is found to be insufficient and you want to complain, you can do so through your Financial Ombudsman Service (FOS).
If you decide to follow the ‘execution-only’ option (where you decide independently, without consulting) There will be less instances in which you are able to make a complaint to FOS.
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