Casa Capital

Mortgage refinance is an oft-misunderstood area of personal finance. Often referred to simply as “re-mortgaging” it has established a reputation of something to do when you’re low on finances. Although cashflow is one of the principle reasons for refinancing your mortgage, it could also simply be a way of saving you money.

To clarify, mortgage refinance is very similar in principle to debt consolidation loans. That is to say, if you identify that your current mortgage has become disadvantageous to you, you can take out a different mortgage to pay off the first and establish better terms. What constitutes ‘better terms’ is entirely individual to you, and depends on what it was about your first mortgage that was disadvantageous.

Why Refinance?

There are three main reasons to refinance your mortgage:

• Cashflow

• Improved credit rating

• Changes in interest rate

Cashflow can be improved by mortgage refinance by negotiating longer terms in your refinance mortgage. That is to say, if you’ve got £50,000 left on your mortgage with monthly payments of £1,000, you could refinance to pay off the £50,000 at a rate of £800 a month. This would of course mean you end up paying more interest in the long run, but it’s a simple way to get more money in your pocket in the short term.

If your credit rating has improved since you originally took out your mortgage, you may be able to use mortgage refinance to get better terms. The worse your credit rating, the higher deposit you would have paid, and the higher the interest you would have been charged to counter the extra risk the lender took on financing your house purchase. If your credit rating has improved (which keeping up with your mortgage payments will have helped) you should be able to obtain a more favourable interest rate.

The third most common reason to refinance your mortgage is a change in interest rate. If you took out a variable rate mortgage and are now finding interest rates sky rocketing, you may be able to find a better deal. Similarly, if you took out a fixed rate mortgage while interest rates were higher, switching to a lower interest mortgage would save you a considerable amount of money over the medium to long term.

All in, although mortgage refinancing can be a part of solving financial problems, it can also be savvy financial management.

A mortgage is often the biggest financial commitment of a person's life. Normally we seek advice from doctors, lawyers and accountants without questioning the need for their services, why should you take a risk trying to source a mortgage by yourself without the help of a mortgage adviser. Here at Casa Capital we have access to all lending banks in the UK for refinancing options, meaning access to hundreds of mortgage products and solutions. Although most clients are very rate driven, there are many other factors that need to be taken into consideration when sourcing a mortgage.

There are three steps to finding the right mortgage for any client:

There are an abundance of products and choices available in the UK market. Some banks will offer discounted fees directly to brokers and offer products not avialable through high street lenders or comparison sites.

Some banks and institutions will offer the ability to make overpayments free of charge and some even allow you to exit or pay off the mortgage without cost, however no single bank does it all!

In an ideal world it would be great to have a bank offer the lowest rate, the lowest costs and charges, however where a lender appears great in one aspect it could be less appealing in another. That is why it is very important to understand all of your requirements fully before making a recommendation. There is no point in recommending a low rate that comes with mandatory salary transfer if you are unable to transfer salary due to other loan commitments as an example!

The main types of mortgage when you consider rate are as follows:

FIXED

A fixed rate mortgage is where the bank fixes the interest rate for between 1 and 5 years which protects the rate against fluctuation in the BOE Base rate or the LIBOR rate (depending on the bank).

TRACKER

This type of rate consists of a fixed margin stipulated by the bank plus the prevailing BOE Base rate or LIBOR rate which changes daily (although most banks use a 3 month rolling average rate). If you believe rates will decline then tracker type products are normally a good option.

VARIABLE

Some banks will offer a variable rate, an internal rate which is set by various internal departments within the institution. Although variable rates are no overly transparent, they can sometimes be cheaper than fixed rates.

Why not call us for a no obligation consultation to find out more