Refinancing your mortgage refers to replacing your original mortgage with a new one that has different terms and interest rates. A person may choose to refinance their mortgage in order to take advantage of a lower interest rate or to improve their credit.
You may want to refinance your mortgage to pursue your personal goals. You may want to take greater control of your finances, lower your interest rates, take equity out of your home for another purchase, or change the bank or financial institution that you keep your money at.
There are many things to consider before refinancing your mortgage. You need to know what your current monthly interest rate is, how long your term is for, and if refinancing is a viable option for you. Without doing your homework you may accidently increase your monthly payment rate or extend your mortgage terms. If you are considering refinancing you should speak with a financial professional who can help guide you through the process.
Benefits of Refinancing your Mortgage
A few of the main benefits of refinancing your mortgage include:
Pay off debt
- Refinancing your mortgage can give you the ability to pay off high interest loans, credit card debt, and other financial commitments. Having the ability to pay off higher interest loans first can allow you to save a lot of money in the long run. If you are considering taking out a home equity line of credit you should meet with your financial advisor. Your financial advisor will be able to guide you through the steps you need to take including getting your home appraised, finding out how much the lender is willing to loan you based on the value your home is appraised at, and how to best go about any further financial transactions.
Increase your credit score
- If you prove that you can pay off your bills on time you may be able to improve your credit score and overall rating. With an increased credit score you can secure loans at lower interest rates, allowing you to benefit through significant savings every year.
Reduce your interest rate
- You can reduce your interest rate by securing a loan at a lower price which can save you money that would otherwise be paid in interest.
Take equity out of your home to purchase items
- If you are looking to make a new purchase such as a car, pool, home renovations or a cottage you may want to refinance your mortgage. This will allow you to take equity out of your home and add these purchases to the remainder of your mortgage. This can have a positive effect on the amount of interest you have to pay and your credit score.
It is important to note that there are risks associated with refinancing your mortgage. Although it may seem like the right option at the time it is crucial to think of what refinancing will look like for you over the long run. Make sure to speak with your financial advisor about the benefits and risks that may be associated with you refinancing your mortgage.
- You should make sure to be aware of all of the fine print and what the new mortgage terms will look like. It is important to make sure that they are manageable.
- You may be responsible to pay bank fees, for an attorney, or penalties for refinancing your mortgage.
Possible financial penalties
- You may be subject to paying a penalty for refinancing your mortgage. You need to make sure that you have read all of the documentation and have a complete understanding of the logistics involved if you refinance your mortgage.
Refinancing your mortgage may be a good choice for you and your personal needs if you have done your homework and have confirmed that the benefits outweigh the risks.