Refinance a mortgage

Sooner or later your mortgage will reach term and must be refinanced. Here we’ll show you what to watch out for.

Investigate a new supplier

Refinancing a mortgage takes less effort than you might expect because the financial requirements dictated by most banks are the same. Take note of the term and notice period of your mortgage and make sure to compare different mortgage suppliers before you make a final choice – after all, we’re talking about a large sum of money, and you certainly want to optimise the costs of financing your home. Thus it pays off to look into the details and negotiate the best deal.

Early repayment charges

Different conditions apply depending on the type of mortgage. Fixed-rate mortgages can be redeemed early only by paying an early repayment charge. In this case, you are better advised to wait until the mortgage has reached full term. Other types of mortgages such as a variable-rate mortgage can also be redeemed early only by paying a fee. Even while taking into account the notice period and term of a mortgage, you should check about other applicable fees associated with a change and keep them in mind when making the final decision.

Early follow-up financing

If your mortgage will be reaching maturity in from six to twelve months, you have the opportunity – subject to the notice period – to conclude follow-up financing even at this early date, possibly with another mortgage supplier. Such early follow-up financing is referred to as a forward mortgage. This is worth investigating especially if you expect interest rates to rise and you would like to lock in current low rates. Get information about any applicable forward mortgage surcharges, which most banks require. As a rule and depending on the bank, these amount to between 0.2 and 0.5 per cent.

Staggered maturities

If you have concluded a multi-tranche mortgage with different maturities, it often becomes difficult to change to a new mortgage supplier. The conditions for refinancing only part of a mortgage are generally not terribly attractive. In such cases, it is worthwhile to look into an early redemption or early follow-on financing (if the dates when the mortgages mature are not more than 12 months apart) and refinance the entire mortgage. When doing so, compare the prepayment penalty or the forward mortgage surcharge with the interest payments you will save by making such a change. A further possibility is to split up the property’s mortgage note. For this, ask your notary or your land registry office.