Mortgage Debt – Refinancing Your Mortgage

Whilst it may be true that the worst of the credit crunch is over, the lenders are still exercising great caution in assessing to whom they will advance mortgage loans.

Much of the last 18 months has been focused on the lender’s looking to stem the flow of losses arising from defaulting mortgage borrowers and rebuilding their own balance sheets and equity base. The level of new mortgage loans has plummeted and existing borrowers have had a torrid time refinancing existing liabilities as they come off fixed term arrangements. These were typically entered into at the height of the property boom in the 2004 – 2007 period when consumers were looking to lock in their repayments at historically low rates for fixed periods.

Lenders were falling over themselves for market share. The buy to let phenomenon also fueled the need for mortgage loans and lenders progressively relaxed their lending criteria in search of market share.

Those days are gone.

Anyone looking to refinance a current mortgage will need to have two endearing features if they are to attract the best possible terms: a large deposit or equity value in their property and/or an excellent credit history. Whilst deposit requirements have slightly reduced in recent months, you should expect to have at least a 20% deposit to be seriously considered for good terms else you will find the rate charged much higher than you expected. Similarly, any blemish on your credit history will make it much harder to submit a successful application.

If you are coming off a fixed period loan then you may find that the current standard variable rate of the lender is not too dissimilar to the rate you enjoyed as a fix. Opinion is still divided as to when the best time to seek a fixed rate deal is as many do not expect interest rates to increase until well into next year. Timing is all and if you move too soon you could end up paying a high rate for much of the period when interest rates (or standard variable rates) remain low. Do not expect to be able to move to a tracker mortgage except where the spread over the base index is a healthy margin.

Some lenders are offering better terms to their own customers. Therefore, make sure to check with your existing lender if they are offering special deals before casting around for other lenders. It will be cheaper (in terms of fees paid) to stay with you current lender if that is a sensible option.

In addition to general rates charged, the number of options available to those looking to remortgage will be greatly reduced from the last time they looked at the market. Fees will be considerably higher too so make sure to weigh up the total cost of remortgaging rather than just the interest rate charged.

There are a number of internet comparison websites that will enable you to quickly see what offers are available and the terms offered. If you have negative or little equity you may have no option but to stay with your current lender unless you have cash to inject to increase the deposit.

It may be worthwhile using the services of a mortgage broker. Whilst there will be additional fees to pay their up to date knowledge of what is on offer may save both time and money in seeking out the optimal deal for managing your current mortgage debt.