To buy a dream house, you take out a mortgage. Since you are tied up with a debt to be paid down over a long period of time, you try to find a deal at better interest rates.
Getting a commercial mortgage loan at affordable interest rates is not a cinch as a lender will look over your credit history, repaying capacity and futuristic financial condition. Multiple factors are taken into account to decide interest rates.
Further, mortgages work on variable interest rates. In the beginning, for two to five years, you will likely be put on a fixed interest rate deal, and then you are shifted to a standard variable interest rate.
As long as you have a fixed interest rate deal, you know how much you are to pay down every month, but standard variable interest rates keep changing as the base rate by the Bank of England is changed.
It is likely that you got the best deal when you applied for a mortgage, but now another lender may be offering better deals. This may be the sign that you should transfer your mortgage. A mortgage loan balance transfer works are also known as refinancing.
It means taking out a new mortgage with a new lender offering it at lower interest rates. A new lender will pay off the existing mortgage, and the account will be closed. Then, you will have only a new mortgage to be paid down over a period of time. However, it does not mean that you have the facility of mortgage balance transfer for all time.
When should you opt for a mortgage balance transfer?
There are specific circumstances when you can refinance your mortgage. Here they have been explained:
Your fixed interest deal is going to end
This is the most popular reason why buyers think of transferring the mortgage balance. As your fixed interest period comes to an end, you are put on a standard variable interest rate. This is the best time to refinance your mortgage.
Standard variable interest rates are higher than fixed interest rates, so they may cost you higher every month. Therefore, it makes sense to research, so you get a deal at lower interest rates.
At the time of refinancing your mortgage, your lender will look over your credit score and financial situation. If you got a mortgage when you had a bad credit score, you would be able to secure a deal at a lower interest rate as your credit rating must have improved, provided you made payments on time.
You want a top-up
Another reason for transferring the mortgage balance is that you want a top-up. For instance, you may need money to refurbish your house, or you want to consolidate your other loans. By the time your fixed interest deal comes to an end, your house may have built up some equity. You can borrow against the equity of your house.
It is crucial to consult the best broker for a mortgage, so you get the best deal. Note that lenders follow strict rules for deciding about a deal. By consulting a mortgage broker, you may be able to know if you are in the right situation to transfer your mortgage balance. There are circumstances when this may not be an ideal situation.
A mortgage broker will guide you about it thoroughly. For instance, it does not make sense to remortgage if your financial situation has worsened. A lender will go through your credit history and current financial situation.
They will likely offer you an expensive deal if it is not good. Further, if you try to transfer the balance before your fixed interest rate deal ends, you will have to pay an early repayment charge, a percentage of the remaining balance.
What to do to transfer mortgage loan balance
Now you have got to know when you should seek a mortgage loan balance transfer. The next step is to know what essential steps you should take to do so.
Do proper research
Various mortgage lenders are out there offering different kinds of deals. It is not an overnight process that you have decided to refinance it, and the next day you are all sorted. You will have to do proper research to know market interest rates and if they are lower than the one offered by your current mortgage lender.
You should start the research at least six months before your fixed interest rate deal expires. Take note of associated fees as they may add up the cost. It makes sense only when refinancing helps save money despite paying all associated fees.
Try to get an agreement in principle. You will be able to get an idea of how much you could borrow and the interest rate with a soft credit check. Though it is not guaranteed that you will get approved at the time of application, you will get some understanding.
Apply for a balance transfer
Once you have picked a lender, you can apply for a refinancing of a mortgage. A lender will peruse your credit report and repaying capacity and then will send you the offer. Review it carefully, so you do not rue the day down the line.
Take the help of a mortgage broker, as they can make all arrangements on your behalf in exchange for nominal fees. As they will have a network of reputed online lenders, they may be able to introduce you to the one whose terms and conditions fit your needs.
The bottom line
A mortgage loan balance transfer is an alternative for you if you are seeking a deal at lower interest rates.
However, there are circumstances when doing so will be similar to the turn of the screw. It is advised that you consult a mortgage broker as they will carefully analyse your financial situation before advising you.
They will likely introduce you to the right one since they have an extensive network of professional and reputed online lenders. Do research from your end as well, so ugly surprises do not catch you down the line.
Description: A mortgage loan balance transfer is known as refinancing your mortgage to avail a lower interest rate deal.