How does mortgage refinancing work?
When deciding to take out a bridging loan or not, it can be common for property developers to decide as a strategy to refinance their bridging loans once they have reached the end of the loan term. But what exactly does this mean when it comes to mortgage refinancing? We explain in further detail everything you need to know about this strategy.
Mortgage refinancing explained
In the simplest of terms, refinancing your mortgage is when a borrower who has taken out an old loan (this may be a mortgage or a bridging loan) to then exchange this for a brand new mortgage term, interest rate as well as also potentially a new mortgage term too. Some may decide to get a new mortgage with their existing lender or decide to refinance their mortgage with a new lender entirely.
You can also refinance bridging loans to help with your mortgage. A property developer may decide to opt for a second charge bridging loan in order to secure it against a property already has a mortgage outstanding. This is an option for those who are perhaps interested in raising funds in order to help carry out a renovation project (for example, to build an extension, create a loft conversion or other property improvement projects). This is because your main mortgage isn’t being repaid, and you do not need to worry about early repayment charges that could be incurred due to the second charge bridging loan take out which is enabling you to raise the required funds.
How do I find the best mortgage refinancing deals?
If you are interested in the possibility of mortgage refinancing, then it is worth making sure that you are fully aware of:
- The percentage value of the home that you want to borrow against (the LTV ratio)
- What the current estimated value of your property is
- The annual income that you or anyone else who will be named on the new mortgage will be
You should also figure out what type of mortgage you would like to compare when it comes to mortgage refinancing. For example, consider the following:
- Tracker mortgages: this type of mortgage means that the mortgage rate that you pay is set a percentage above the base rate that has been created by the Bank of England (or your lender’s standard variable rate). What this means for you is that if interest rates increase or decrease, the same will go for your mortgage repayments too
- Offset mortgages: that means your savings account and mortgage are combined together. In this scenario, that means the money which is in your savings account is counted as an overpayment (on a temporary basis) for your mortgage. This has the potential to save you a considerable amount of money over time when it comes to interest paid.
- Fixed rate mortgages: with this kind of mortgage, the interest rate is fixed for a period of time. In the majority of cases, this will be for a period of between two and five years in total. This can be a great option for you if you want to have the comfort of knowing exactly what your repayments will be costing you each month, without changing as a result of interest rates going up or down.
Is refinancing the right option for you?
It is worth noting that making the decision of mortgage refinancing is not the best decision for all homeowners. Some may consider mortgage refinancing to:
- To cut down on costs: some homeowners may choose to refinance their mortgage in order to benefit from lower interest rates overall or lower monthly repayments. It is estimated that almost half of all borrowers in the UK are in fact paying more than they need to on their mortgage
- Raising money: it can help to release equity in your home which can be particularly usefully if you are looking to consolidate existing debts or alternative release money for home improvements.
Who can consider mortgage refinancing?
Providing that you already have an existing mortgage, and meet the criteria set by the mortgage lender, you can be eligible for remortgaging. It may be particularly pertinent to you to consider mortgage refinancing if you are coming to the end of a discounted deal you were receiving, or are coming to the end of a fixed rate period on a mortgage.