Britain has become a nation of homeowners… Unfortunately, forty percent of all UK homeowners are blindly staying with their standard variable rate mortgages – unaware that they are potentially losing out on some big-time savings.
If you are currently paying the standard variable rate with your lender, or are coming to the end of a special rate, you could find that a lower rate of interest on offer from alternative lenders. By renegotiating the interest rate, you could have lower monthly payments.
So, for example:
If you have an existing interest-only mortgage of £220,000 with a standard variable rate of 6.5%, you would be paying £1,191 per month.
If you switched to a refinance package that offers a two year fixed rate of 4.49%, the monthly interest payments would only be £823.
That is a monthly reduction of £368 and over the two-year term that’s worth an amazing £8,800 in savings!
Apart from saving you money, refinancing your home can also present you with other options that may be more beneficial to your financial needs – it could allow you to pay off your existing mortgage early, to raise extra money or even to consolidate your outstanding debts.
To repay your mortgage early:
If we were totally honest with ourselves, nobody really wants a mortgage, and the quicker you can be rid of it the better! If you repay it early then you will have more time to finance the things that you really want – like that big family holiday, a shiny new car, a nice conservatory etc.
With some clever refinancing and switching to a lower rate of interest whilst still maintaining the same monthly payment amount that you have been used to, you could potentially reduce the life of your mortgage by years.
However, be aware that your existing mortgage might incur early repayment charges, especially in the early years and even if there are no early repayment charges your mortgage lender may require an administration charge.
To raise extra money:
If you want to raise money for home improvements or other purchases then refinancing can often be a cheaper and more flexible alternative to taking out a personal loan. In many cases, home improvements and modernization can be far cheaper than moving house altogether and you will also benefit from the increase in value to your property.
To consolidate your outstanding debts:
Refinancing can allow you to release some of the equity that is tied up in your own home allowing you to pay off any debts that you have, such as credit cards or car loans. The rate on refinancing packages can often be considerably less than those of a personal loan.
However, before taking this option, you should carefully consider the risks of moving unsecured debt into secured debt and also any increases in the length of the repayment term.