Refinancing your mortgage basically means that you are paying off an existing loan and replacing it with a new one. Make sure that you do your research and know your numbers before refinancing so that you know if it actually makes financial sense for you to do so.
Advantages of refinancing your mortgage
- Lower interest rates.
If current interest rates are lower than your mortgage rate it makes sense to refinance…you could save tens of thousands of dollars.
- Lower your monthly payment.
A lower monthly mortgage payment could free up money that you could save or invest elsewhere.
- Access equity in your home.
You can access up to 80% of your home’s value less any outstanding mortgages. If you are looking to purchase an investment property or start a business this may be something you want to consider.
- Consolidate your debt.
Using the money from a cash-out refinance to pay off other bills is the same as transferring the debt into the home loan. The benefit is that mortgage rates will likely be lower than most credit cards potentially decreasing the total amount of monthly payments.
- Convert between an adjustable-rate mortgage and a fixed rate mortgage.
Axiom Mortgage Solutions offers a great explanation of the advantages and disadvantages of each.
- Shorten the term of your loan.
Save thousands of dollars in interest over the life of your loan.
Things to watch out for
- Having to reapply…not necessarily good if your situation has changed.
- Extending your loan term.
- Extra costs incurred during the refinancing process. Make sure that these are not greater than the possible benefits of refinancing.
- Payout penalties
- Application fees
- Set up fees
- Appraisal cost
- Legal fees
While you are weighing the pros and cons of refinancing your mortgage, here are a couple of links that you may find helpful:
- Mortgage Calculator
- Axiom Mortgage Solutions