Refinancing a mortgage will make sense for some homeowners, and this guide will help you decide whether or not this is a smart financial move for your situation.
The first thing to understand is why some homeowners choose to refinance their mortgage, and if any of the following reasons apply to your situation, refinancing may be a wise choice:
1. You want to change your loan term
If you are having difficulty making monthly mortgage payments, a refinance may allow you to lengthen the time of your mortgage and lower your monthly payments. If you are certain that your current payment schedule is not realistic for your household income, refinancing your mortgage can provide you with financial freedom, and you will stress less about making payments.
You can also go in the opposite direction and change your mortgage from a longer term to a shorter term mortgage. This will allow you to enjoy lower interest rates, and you will own your home sooner. Your monthly payments will increase in this case, and you need to make sure you have enough stable income to cover your new payments.
2. You want to pay off debts
When you make payments on your mortgage, you build equity in your home, and this is the difference between your home’s fair market value and the amount you still owe to the lender. You can gain equity by paying off your loan principal or when your home’s value is raised. In most cases, if your loan is more than five years old, it’s likely that you’ve probably built a bit of equity in your investment simply by making your regularly scheduled payments.
You can take advantage of the equity you have in your home by replacing your current loan with a higher-value loan and taking out a portion of the equity you have. This would allow you to pay off debt, and if you have higher-interest debts spread over multiple accounts, you can use the equity in your home to consolidate your debts to a lower interest rate and reduce the possibility of missed payments and late fees.
3. You want to complete home renovations
Home renovations are not cheap, and if your home is old and outdated, refinancing your mortgage will help you pay for such projects. Whether you need a new roof or want to renovate your kitchen, refinancing your mortgage will allow you to use the equity you have to pay for home improvements, and you won’t have to take out a personal loan or put charges on your credit card.
4. You want to save for your retirement
If you have equity sitting in your home but have not maxed out your annual retirement contribution limits, you can consider taking a cash-out refinance and investing the difference, which may end up making you more money over time. The earlier you start to invest and save, the more time you will have to accumulate interest on your investments before you retire.
5. You want to convert to a fixed-rate mortgage
An adjustable-rate mortgage will usually offer borrowers a lower interest rate at the start of their loan, but there is always the possibility of a rate increase which will not work in the borrower’s favour. Some homeowners will want to refinance their mortgage to a fixed-rate mortgage to eliminate this possibility.
How to Make the Right Choice
When determining whether or not a mortgage refinance is a good option for you, you must assess your finances and understand what a mortgage refinance is and how it works. The use of a mortgage refinance calculator is also very helpful because this will give you a basic idea of how your monthly mortgage payment will be affected.
Do you think you are ready to refinance? Charlene Elliott from Dominion Lending Centers-Mortgage Mentors will help you determine if this is the best course of action. Our team will first make sure you meet all of the requirements to refinance, and we will then discuss how to proceed. Refinancing your mortgage can provide you with the cash you need, and you can contact us today to get started on the refinance process! Call 780-838-1449.