Why Refinance a Mortgage?
One of the best ways to save money on your home mortgage is to get it refinanced. With interest rates at an all time low, many have already taken advantage of home loan refinancing in the form of better terms and rates.
What is Mortgage Refinancing?
Refinancing a home loan is simply the process of replacing a mortgage loan with a new one. The old loan is completely paid off with the funds from the new loan. While the loan typically comes from a different lender, it’s not uncommon for many individuals to continue using the same lender.
Benefits of Refinancing a Home Loan
As refinancing allows you to change your loan to one that is better suited for your needs, it also offers additional flexible features. Whether you changed your job or need the extra cash for a side project, below are just some of the benefits to refinance a mortgage and how doing so can help you save money.
Lower interest rates: Refinancing your mortgage to new terms can allow you to take advantage of lower rates on your home loan. Reducing the rate even by a single percentage can save tens of thousands of dollars over the course of the loan, even after closing fees and fees are calculated.
Reduced monthly payments: If your financial situation can only allow you to pay a certain amount per month on your mortgage, then refinancing can allow you to lower your monthly payments. This generally requires extending the length of your loan.
Flexible rate options: Homeowners with variable rate loans can change their mortgages to a fixed rate by refinancing. This is particularly beneficial as having a fixed rate means paying the exact amount each month, even when markets are constantly shifting directions.
Debt consolidation: Chances are you have some form of debt such as credit cards or student loans. By refinancing, you can consolidate all your debt together and potentially save even more money. Doing so also lets you easily manage your financial obligations into one monthly payment at the same rate.
Redraw: Situations outside your control can happen at any moment. Any extra repayments that are made towards the mortgage can be withdrawn should an emergency arise.
Unlock home equity: Whether you have a home improvement project or need extra cash for an investment, home equity loans can allow you to access the equity in your current property. The amount you qualify for depends on a number of factors.
When it Makes Sense to Refinance
Refinancing allows homeowners the opportunity to lock in a low interest rate, lower their monthly bill, switch to a fixed rate loan, and even pull equity for a large purchase.
The following should always be taken into consideration when deciding if refinancing is ideal for your situation:
- Interest rates: What are the current rates? Refinancing your mortgage even by half a percent would still be worthwhile and allow you to easily recover additional costs.
- Credit score: How has your credit changed since having your mortgage? If your score has drastically improved, then this increases your chances of qualifying for a better rate.
- Future plans: How long do you plan to stay in your current property? If you are in the long haul, you are in a much better position to quickly recoup the refinancing costs sooner rather than later.
- Income: Are you earning more money? Shortening the loan term on your mortgage allows you to quickly build equity in your home and pay less interest over the course of the loan.
When to Reconsider Refinancing
Refinancing is not always the ideal solution for everyone and there are times when it simply does not make sense to do so. Locking in a low rate may sound appealing but the amount you potentially save is easily negated by closing costs and lending fees.
It may not be ideal for you to refinance your mortgage if you:
- Have had your mortgage for a long period of time
- Have plans to move out within the next few years
- Have a mortgage with a prepayment penalty
- Are not sure of your long term goals
- Have poor credit or expect to change jobs soon
How to Approach Mortgage Refinancing
While opting for a new loan can be advantageous in certain situations, it’s important to be clear about your goals. Why do you want to refinance your mortgage? What are your long term goals? Is refinancing in your best interest?
The process to refinance a mortgage is straightforward but these are questions that you have to ask yourself as knowing the answers can prevent potential refinance troubles before they occur.
To get started on refinancing your mortgage, simply fill out the form on this page. One of our consultants will contact you within 24 hours with more details