If you are a mortgage debtor, you could still potentially benefit significantly from an opportunity for debt refinancing.
COVID-19 and the lockdowns it caused forced us to reinvent, reimagine and re-evaluate many things – from the way we communicate to how we shop to how we do business and how we live. This necessary introspection, along with the stamp duty holiday introduced by the UK government to invigorate the market, inevitably lead to the mortgage spike that we saw take place in 2020.
The increased demand for better living quarters during the pandemic, coupled with effective measures to prevent a real estate catastrophe, resulted in 2020 seeing the highest number of mortgage approvals in well over a decade. By the beginning of 2021, a lot of people had cause to celebrate acquiring new homes – but by the same measure, a lot of people had accumulated a lot of debt that needed managing.
Managing debt is not an effortless task at the best of times, and the uncertainty of the economy in the current financial climate only aggravates matters. Fortunately, debtors of all sorts, including mortgage borrowers, can count on an insolvency practitioners firm for help when it comes to cash flow and debt management.
Mortgage refinancing is one of the staple moves used to manage debt – but what exactly is it, and is it a good option for you?
What is Mortgage Refinancing?
Mortgages, like all other loans, can sometimes benefit from being refinanced. To do so, the debtor pays off an existing loan with the money they get by taking on a new, more advantageous one.
There are many reasons why you may wish to refinance their mortgages, but by far the most common is to replace your current mortgage with one that has a lower interest rate.
Alternatively, many debtors choose to refinance their mortgages to switch to a fixed-rate mortgage from an adjustable-rate one, or vice versa, depending on their current needs.
Finally, some people have taken to refinancing mortgages to tap out equity and consolidate their debt, even though this way of going about it can sometimes aggravate debt problems even further.
Refinancing can be an optimal financial move if you can achieve any of these objectives through it, but whether you will manage to do so depends on the current if interest rates. If the ROI is currently lower than when you mortgaged, you can use refinancing to your advantage and end up having to pay significantly less money.
The Future of the Housing Market
As we mentioned earlier, the housing boom that started in 2020 and continues into 2021 was in no small part driven by the stamp duty holiday. The surge of activity drove prices high – too high, according to some experts. Economists have likened the jump to that experienced during the previous decade’s housing bubble – and we all know what happened after that.
While the circumstances we are currently facing don’t match those of previous housing crashes, there are indicators that the market is due for another shakeup.
For starters, the stamp duty holiday will end come April. The UK’s unemployment problem doesn’t seem like it’s going to go away any time soon, which creates all sorts of economic hurdles.
Further, as the ramifications of Brexit manifest and lockdowns recur, experts claim that the appeal and availability of mortgages are likely to decrease. Mortgage lenders estimate that a yearly mortgage drop of 2-8 percent is to be expected as soon as the stamp duty holiday ends.
Interest Rates in 2021
Interest rates were at a historic low near the end of 2020 but are now slowly creeping back up again. Some economists estimate that they will be breaking the 3% benchmark and may even climb up all the way to the 3.3% point, judging by the way the economy is shaping up.
If the currently observed upward trend holds, mortgage refinancing will become much less viable for most debtors. As the number of people whose mortgages have an interest rate higher than the current one decreases, people will look for other ways to deal with their financial burdens.
Mortgage lenders have estimated that about 15 million individual mortgages were eligible for refinancing in 2020, and nearly 20 million mortgages could benefit from refinancing at the end of the year. That number is estimated to drop by all the way down to a little over 6 million if rates of interest go above 3.1%.
What Does all of This Mean?
All indicators point to the conclusion that mortgage debtors could potentially still manage to refinance their loans, potentially saving quite a bit of money doing so. However, that window of opportunity is swiftly closing, and with each passing day, the chances of you managing to refinance a mortgage successfully wane significantly.
Still, as 2020 has quite thoroughly demonstrated, the future of the market is uncertain, and there’s no real way to know what it holds. The ROI is projected to go up a notch, but there’s no guarantee that it will do so or that the rise will last very long. If yet another disaster strikes the UK, it wouldn’t be surprising to see the interest rates slump once more. If that happens, you might well be looking for a new window of opportunity for refinancing your mortgage and cutting back some debt.
If you are a mortgage debtor, you could still potentially benefit significantly from an opportunity for debt refinancing. Recognizing one as soon as it presents itself, doing your due diligence, and playing your cards right would be crucial if you are to be successful in making mortgage refinancing work for you.