Step 5. When is the best time to refinance your mortgage?
The last question deals with when you should actually start the process of refinancing your mortgage. Of course, we are happy to provide advice in this regard: you are always welcome to make a free telephone appointment to discuss your situation directly with one of our mortgage advisers and to determine the best time frame. The following rules of thumb apply:
My fixed interest term expires within 12 months
In this case, it definitely makes sense to have your options assessed at this time. Basically, you can make all the arrangements to refinance your mortgage now, so that you will have a new mortgage in exactly 12 months’ time. The longest mortgage offers are valid for 12 months. Of course, it is better to wait a little longer if you expect interest rates to fall in the near future. The lower the interest rate, the sweeter the switch!
My fixed interest term is set to expire within 7 years
First of all, it is important to consider how you expect interest rates to develop. No one can predict with any certainty what mortgage rates will do in the future, so you’ll never know the best course of action until after the fact. Are you expecting interest rates to fall? In that case, it would be better to wait. Are you expecting interest rates to rise on the other hand? If so, it may be worth the money and effort to take out a new mortgage at the current low interest rate.
The advantage of refinancing your mortgage is the lower monthly repayments. In addition, you can create more long-term security for yourself. If your interest rate is fixed for the next few years, when you do refinance, you can fix the rate for another 10 or 20 years (at the current low interest rate). The disadvantage of refinancing is the higher penalty interest.
I have more than 7 years left on my fixed interest term
For most people, it is hard to think and plan more than 7 years ahead. Of course, your life can change considerably over a longer period. If you have a lot of time left on the fixed interest term of your current mortgage, the penalty for refinancing is probably too high to recoup the costs through the lower monthly repayments within a manageable period.
I have a savings-based mortgage or annuity mortgage
If the entire mortgage is paid off by a credit balance in a bank savings account or by annuity repayments, then refinancing your mortgage is often not worth considering. This is because the benefit of lower mortgage interest rates in these mortgage types is (partly) counteracted by higher savings account contributions and higher repayments respectively. On balance, a lower interest rate is almost always beneficial, but with these mortgage types, the advantages are limited. It is questionable whether this limited benefit is enough to recover the costs, which often isn’t the case.