Things to Consider Before Refinancing a Mortgage in the UK

When you first take out a mortgage for your home, you are both excited and nervous. This represents a huge milestone whether it is your first time buying a house if you have done it before. You may think that you’re going to pay your mortgage every month and be done with it, but sometimes mortgages become a disadvantage for home owners. This will likely make you want to refinance in order to take off the pressure and gain access to more cash flow. However, you shouldn’t just refinance on a whim. Instead consider what you have to work with and find the refinancing option that works best for you.

Wait to Refinance

Before you do anything, you should define in clear terms what the end goal for refinancing is. It offers a framework while going through the terms from lenders. These reasons guide how you will proceed with the process. You should refinance with the goal of lowering payments. Lenders will not be willing to refinance mortgages they issued in the last 20 to 81 days. This leaves you with the option of either waiting until the time lapse is over or shopping for a new lender. Though interest rates are good now, it can be advantageous for you to wait a while longer before refinancing.

Why Refinance?

Other than lowering payments, you should refinance to lower your interest rates. Paying less in the long-run should be the main goal of refinancing, but you can also improve your own cash flow and boost your credit rating. Using a mortgage repayment calculator, cash flow can be increased by negotiating longer terms. You may be able to use mortgage refinance to get a better plan and increase your credit rating by making diligent payments. While each loan is different, you can pay attention to the finer details, pay less, and increase your financial standing.

Consider the Type of Mortgage

At the moment, the Bank of England has record low interest rates. It is a great time to refinance your loans. It is unlikely that an opportunity to get a better rate won’t be around forever, but before you refinance you need to think about the kind of mortgage you have, the conditions of it, and how you can best reassess your payments and get a more reasonable interest rate.

Standard variable rates are mortgages that allow borrowers to set their own rate. This makes them the preferred method—the adjustments to the rate can be wholly independent of prevailing interest rates. Banks typically charge low fees for implication and rarely impose repayment penalties for early payments. Keep in mind that the bank has the ability to change the interest rate and could increase your monthly payments.

Fixed rates are mortgages where the loan can be from 15 to 30 years long. At the end of this period, the loan can be converted to the provider’s standard rate. The problem is that it is almost impossible to know what the prevailing variable rate will be. You could be faced with converting your loan or refinancing again.

Another is the tracker mortgage. As the name implies, these mortgages are structured a lot like a SVR but at a discount. These terms typically run for two to three years, but can run longer upon further negotiation. Application fees are minimal but early repayment charges do apply. The borrower is gambling a bit, the future interest rate will fluctuate. Despite projections, they are largely unpredictable. The ideal situation is to obtain a successive fixed rate or a discounted one as long as the prevailing interest rate remains low. Still it can be unlikely that providers will agree to this.

Whatever mortgage you have, it is important to look at the details. If you are thinking about refinancing, you should understand what you are getting into and take the steps to know what is best for your situation. Sometimes it is best to wait depending on your policy, but right now interest rates are low and refinancing is quite enticing for borrowers. Whatever you decide to do, put in the time and you will be able to find the best rate and refinancing agreement.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.