When interest rates are rising, how can you refinance?
When interest rates are rising and there is so much uncertainty surrounding mortgages, Darren Polson offers advise on how to remortgage, including timing considerations and market fluctuations.
There was a sense that once summertime arrived, the housing and mortgage markets may become more solid, but it appears that hasn’t happened yet.
Mortgage rates skyrocketed after the terrible mini budget last year, as has been extensively covered in writing. Although they appeared to have peaked, many lenders have again temporarily pulled deals for new consumers as of this writing. There will be more discounts offered, but they’ll probably come with greater rates.
Of course, this is a significant issue for first-time purchasers and those moving, but individuals whose mortgage deals are up for renewal will likely have the most impact. In other words, rates are once again increasing, albeit not as quickly as they did last year.
Rising rates translate into higher monthly expenses for borrowers, but there are measures that could offer some protection, like talking with your lender about extending the mortgage’s term to try and limit the monthly rise.
Remortgaging could also be a viable choice to acquire funds for things like home renovations or debt reduction.
You should get assistance, either from an impartial mortgage broker or financial consultant, as you would with all other elements of financial planning, especially when significant sums are at stake.
This can assist you in determining whether it is the best choice for you and, if so, whether you can afford the additional amount over the course of the entire mortgage term.
When should I think about refinancing?
You typically have up to six months before your mortgage agreement expires to get a new one.
Whether fixed or variable, the majority of rates in the UK have an expiration date and can continue for two, three, five, seven, or ten years.
Remortgaging is possible at any time, however it is typically done near the conclusion of your current mortgage arrangement to avoid any Early Repayment Charges (ERC).
It is possible that your lender will switch you to their Standard Variable Rate (SVR) if you decide not to review your mortgage agreement before it expires. This could result in you spending more overall because, in most situations, the SVR will be greater than the rate you were receiving.
You have the choice to remortgage to a new lender at the conclusion of this initial time, or if you choose to stay with your current lender, you can complete a process known as a product transfer.
An independent mortgage broker may find you a deal and make sure the transfer is finished when your contract expires, preventing you from having to face an early repayment penalty.
What elements will affect my refinance?
As you might expect, there are a number of things to take into account, such as whether your home has increased in value since you first purchased it and, as a result, your loan-to-value (LTV) has changed. [Editorial note: LTV is displayed as a percentage and is the value of your home less the equity.]
This can imply that you have access to more offers.
It’s also possible that significant changes—whether anticipated or unanticipated—have taken place in your life, and as a result, the mortgage product you previously had may no longer be appropriate.
Remortgaging can provide you the chance to locate a package that is more suited to your needs if you do see a big shift in your income, outgoings, or both.
For individuals who are switching to a new arrangement, there are two types of mortgage choices. A remortgage and a product transfer. It’s significant to recognise that there are some significant distinctions between them.
Why should I understand product transfers?
It is not necessary to engage in further legal proceedings if you take out a new mortgage with your current lender; this is referred to as a “product transfer.”
There are typically no requirements for extra documentation. Although it’s less common currently because of rate increases, some lenders do permit you to make changes before the conclusion of your current agreement.
What are the mechanics of remortgaging and how does it differ from a product transfer?
You are essentially applying for a new mortgage with a new lender when you remortgage.
An application with a credit report and supporting materials, such as proof of income, are needed for this.
Additionally, you will need a conveyancer or solicitor to assist with the legal side of things.
It is generally advisable to carefully manage your credit before applying because this is a new application, and to avoid applying for additional types of credit.
Following application, the process normally takes four to eight weeks; however, the exact time frame may depend on your unique situation.
Before moving to a new mortgage contract, what should I think about?
As always, consider any changes carefully before making any decisions.
You should keep in mind that a mortgage is probably the largest financial commitment any of us will ever make and that it will follow us for the most of our working lives.
You might save a tonne of time and money by consulting an independent mortgage broker if your mortgage contract is about to expire or if you just need advise on what to do next.