The prospect of refinancing your mortgage might sound scary if you’re not familiar with what’s involved or the advantages that come with taking this route.
To prevent a lack of understanding being a burden on your finances, here’s an explainer on the ins and outs of mortgage refinancing.
The term refinancing in the context of a mortgage effectively means switching your home loan from one lender to another.
The reason you’d do this is to get a better deal, with lower monthly repayments or improved terms compared to your existing package.
By refinancing you’ll effectively be paying off your mortgage with a new loan, so you’ll still owe the same amount. What matters most is getting a lower rate of interest, which in turn shrinks what you have to pay month by month.
Your financial circumstances will still have a part to play in determining what refinancing deals you’re offered, just as they did when you first took out your mortgage.
There are also external market pressures to take into account, so part of the process of refinancing is about getting the timing right.
Mortgage lenders can advise you on the advantages of refinancing in your situation
If you aren’t sure about whether or not refinancing is a good route to take right now, it’s wise to find an expert mortgage lender on loandepot.com, because sites like this are the perfect place to get advice and guidance before you make a decision.
Crucially, a mortgage specialist will be equipped with the experience and expertise to look at your finances and also consider the wider market context before pointing to the best route forward.
You might find that your current deal is still the best available to you, or you could reveal that making a move elsewhere will save you hundreds or even thousands in repayments every year.
So what exactly will influence how much it costs to make use of mortgage refinancing? Well, credit score is a key indicator that lenders use to determine the level of financial responsibility that a prospective customer represents. The better your score, the better the rates you’ll be able to unlock.
Lenders will also look at things like your household income, as well as the level of debt you are saddled with outside of your mortgage. If you’ve got large credit card balances to pay off, and other loans to your name, then this might make you less desirable as a customer than someone with minimal money burdens.
Getting your finances in order is therefore a good idea in the run-up to any exploration of your mortgage refinancing options.
The additional perks
When switching to a new home loan, plenty of people choose to unlock equity that they’ve accumulated through repayments and through the natural rise in property prices since they made their purchase.
Cashing out in this way gives you more money to play with, and could help fund things like renovations. Just make sure you confirm your intentions to your lender, and consider how this will impact on repayment amounts.
Another reason you might choose to refinance is so that you can reduce the amount of time that remains before your mortgage is paid off in full.
If you’ve managed to boost your household income significantly and you don’t want another decade or more of repayments and interest to accumulate, this could be an attractive solution.
The bottom line
With a lender or broker to advise you, refinancing your mortgage is a cost-effective and flexible opportunity, so don’t let it pass you by.