Across the United States, not only are financial institutions noting the fluctuating state of mortgages, but homeowners are also looking to take advantage of the situation. The ebbing and flowing craze of refinancing mortgages, otherwise known as “remortgaging,” has swept across the nation, creating its own headlines for the record rates that people are switching it up. So, what does it mean to refinance, why has it become so popular recently, and how are people exploiting the current remortgaging market?
What does it mean to refinance or remortgage?
The word “refinance” can lead to some confusion as to what the option is, with the term “remortgage,” which is primarily used in Great Britain, being more descriptive of what it does. As detailed by USA.gov, mortgage refinancing is effectively just you switching to a different deal. What it does is allow you to pay off your existing mortgage with a new mortgage, with the new mortgage presumably being at better terms in the long run.
Due to how mortgages state that their rates will increase over the spell of the contract, you can often find better rates by refinancing because of how other lenders are willing to drop their rates to compete. You end up taking a mortgage elsewhere, which proves beneficial in some way, such as by being less expensive per month or by having a fixed-rate as opposed to an adjustable rate.
Why are people refinancing now?
As we noted earlier, there has been a tremendous surge in the rate at which people are refinancing in the United States. In August 2019, the Financial Times reported that fixed mortgage rates hit their lowest point in three years at 3.6 percent, coming very close to the all-time low of 2012, 3.3 percent. As you would imagine, such a low rate led to an influx of people refinancing, with activity rising by 12 percent and then 37 percent in back-to-back weeks.
Of course, the rates did start to pick up, but the prolonged spell has many people still seeking to refinance while the going is good. As relayed in the weekly refinancing analysis by CNBC last month, the rate at which people are refinancing is declining – which is to be expected as people who wanted to refinance had plenty of time to do so earlier. Still, the refinance demand was nearly 38 percent higher than at the same time last year.
How are people saving money by refinancing and remortgaging?
It’s the same deal as shopping around for better rates on utilities or even your food shopping; different lenders offer different rates, with them changing a great deal since you first took out your mortgage. Usually, there’d be several calculations to do for you to work out if refinancing will save you money, but helping the surge of Americans claiming the lower remortgaging rates is the online mortgage broker Tussle, for example. Conveniently placed online to offer fast and free advice, it’s been easy for people to make the most of the superior rates of late.
If you wish to do some rough calculations by hand, to work out how much you’d save per month is quite an easy process. You need to work out the principle and interest of your current mortgage (often found on your statement) and then the principle and interest costs of a potential refinance option. It’s trickier to scale it to the long term, but, as you can remortgage again down the line, you don’t have to stick to the new rates if you find something better in the years to come.
With rates sinking to near-all-time lows and it being quick and easy to remortgage, it shouldn’t come as a surprise that so many people have been jumping on the refinancing bandwagon.