Have you heard of the word "refinance"? What you already know. But I thought it was newer. In fact, I didn't know much about mortgages either. I thought it was my fate to have a loan with a high interest rate. Refinance, which is also called remortgage, gave me the confidence that I could change not only the mortgage and its terms, but also the mortgage lender.
With a refinance, a borrower can pay off an existing mortgage early. In your case, a high interest rate was the reason you wanted to refinance, but other people may have different reasons. Some of the reasons people decide to refinance are to extend the length of time they have to pay back their mortgage, change the terms of how they pay back their mortgage, or change the type or category of mortgage they have.
The difference between refinancing and paying off your mortgage early is that you don't have to use your own money to pay off the balance to the mortgage lender. The payment is made by another lender who has a mortgage on the house.
The new mortgage lender would figure out how much the mortgage was still worth and how much interest had been added to it. Depending on how the original mortgage lender handles loans, the borrower will either have to pay a penalty for paying off the loan early or be eligible for a rebate. All of these will add up to the new mortgage amount.
People sometimes take out more than what they owe on their mortgage. Most borrowers use this to pay off their debts. So, the borrower would get more than the amount of the first mortgage. The main benefit of this method is that debt consolidation can be done at very low interest rates.
Refinancing will be especially appealing to people who took out mortgages when interest rates were very high. They will be very interested in the low interest rates that are available now. A low interest rate also affects how much a borrower has to pay each month. When you add a certain amount of interest to the actual cost of the mortgage, you get the monthly payment. If interest rates go down, the monthly payment will also go down.
Even though people get mortgages and loans quickly, they often think that paying them back is a waste of money. Even though they would keep making the monthly payments, they often don't have to. When the mortgage payment date is getting close, many borrowers' hearts start to race. By refinancing, these people can change when their next payment is due, giving them more time to plan. The new mortgage pays off the old one, and the term goes on for as long as it takes to pay off the new mortgage.
Another important reason to refinance is to change the way the mortgage is set up. People may use specified mortgages instead of regular mortgages a lot of the time. There are mortgages for first-time buyers, mortgages with an endowment, and so on. As soon as their usefulness is over, they start to bother the borrower. For example, the first few years of a first-time buyer mortgage are very good for the borrower. This is because the rate of interest has been cut. But after the discount period is over, borrowers will have to pay an APR that is very high. Refinancing can help people in this situation. The current mortgage will be swapped for a new one that has more benefits, such as a better rate of interest, better terms, etc.
Competition in the financial market has led to the rise of refinancing. In the last few years, there have been a lot more loan providers in the UK. Online lending has made it possible for a lot more people to get loans in the UK. Now, borrowers won't be limited in their loan search by how far away they are. They can easily get in touch with loan providers in different parts of the UK and ask if they can help them refinance.
When it comes to refinancing mortgages, borrowers always have a chance to get the best deals, since every lender tries to win them over with attractive terms. But try to tell the difference between loan providers who really have good products and those who just make their products look good to trick people into getting them. After getting out of a mortgage trap, you don't want to fall into another one.
