The most common reason for people looking to refinance their mortgage is to find a cheaper interest rate than the one they are paying with their current mortgage provider. The mortgage market is competitive and there are deals to be found if you look at what's on offer – a mortgage advisor would tell you not to settle for whatever rate your current lender is offering when your mortgage deal comes to an end, but to scour the market for the cheapest rates.
The economy also urges people to start looking for a new mortgage deal. If interest rates are low or look set to drop in the coming years, then homeowners might opt to switch their current deal to a tracker mortgage – one that tracks the base rate, so if it goes down, so do your monthly mortgage repayments.
However, this could go the other way if interest rates go up instead of down and you find yourself paying more than before, which is why, if the economy looks like it's about to take a nose dive, people feel inclined to switch to a fixed rate mortgage deal if they can find a competitive deal – they suddenly become hard to come by in times of economic uncertainty when lenders can demand a higher deposit and tighten the lending criteria they use to determine whether or not they will offer a homeowner the loan.
Many people choose to refinance their mortgage in order to release capital from the property to use for something else. The reasons for this vary from making home improvements to sending the kids to university, but more often than not it is used to consolidate other debts, such as unsecured loans and credit cards.
Providing that you have sufficient equity in your home, you can take the money out for any reason of your choosing. Other people borrow more on their mortgage and simply add these other debts to it, so that they get paid off along with mortgage payments, probably at a cheaper rate than their credit card provider or lender was charging them.
When times are hard, some people choose to switch their home loan to an interest only mortgage, so they only have to pay off the interest it accrues, not the loan itself, which means lower monthly repayments but a longer time spent paying off the mortgage.
Instead of moving house when the time comes that you need more space, some people remortgage and use the funds to extend the house. This can also add value to your home so you could get back what you put into it in the long run by building an extra bedroom.
Refinancing a mortgage is different for everybody – some do it when they want some spare cash, while others do it because they have no cash and need a lower interest rate. Whatever the reason, experts will always say the same thing – compare mortgage deals first and get the one that works best for you.
