It’s expected that 14 per cent of people will be getting a new home this year. If you’ve been sitting on the fence about refinancing your mortgage, now might be a good time to hop off. For years, the loan market in the UK has been a bit shaky. While a faltering economy doesn’t help matters, new government regulations and an opening up of the mortgage market might help you get the type of loan you need and take some of the stress off your finances. Here are a few other reasons why remortgaging might be a good idea now.
You Want Lower Payments
Lower monthly payments are a big reason why people remortgage their home. If you have a relatively high interest rate right now, or your loan recently switched to the variable rate, you might be surprised by the jump in your payments. Refinancing will likely lower the monthly bill.
The Funding for Lending Scheme resulted in banks receiving £80bn in funding. This, in turn, drove interest rates down. Now, banks are flush with cash – cash you can take advantage of.
You Want To Hedge Against Higher Interest Rates
Hedging against higher rates is a good idea. Today, the BOE is committed to keeping rates low, but this is only because it expects low rates to help boost the economy. That might change within a year or two. You’ll want to have a low rate locked in so that you don’t end up on the wrong side of rising variable rates.
In the UK, you have a choice between fixed and variable rate loans. The fixed rate carries a fixed interest rate for the first 2, 3, 5, or even 10 years. Ideally, you’ll get a 10-year fixed note. This means you have 10 years of fixed mortgage payments, regardless of what the economy is doing. The other option is the variable loan.
Variable loans have moving interest rates that change from month to month. This means there’s no certainty in your payment. If you want to hedge against higher future rates, you want the fixed rate.
You Want Cash
One of the forgotten benefits of a remortgage is the cash-out feature. This is a feature on many UK loans that allows you to get cash back from the refinance. How this works is really simple. First, you refinance your home – this immediately lowers the interest rate and payment. But, you can extend the loan to include some or all of your equity remaining in the house.
Why would you want to do this? Suppose you see an investment opportunity you want to take advantage of. With a cash-out refinance, you can take advantage of that investment opportunity. Just keep in mind that any equity on top of the original loan will add to your monthly repayment amount.
How To Remortgage
Remortgaging is easy. If you think it might help you, start by shopping around with several banks. Next, shop around with a broker. Often times, you’ll find that a broker will help you negotiate the rate below the listed or posted rate by the bank.
Make sure you ask about all of the fees on top of the basic interest rate. Sometimes, these can make a substantial difference in the total cost of the loan.