When talking about homeownership loans, one of the most underrated tools at a borrower’s disposal is the ability to refinance mortgage payments.
There are a number of reasons why people refinance their mortgages – we’ve compiled a list of the top 5.
Common reasons why homeowners refinance mortgage payments:
Taking advantage of lower interest rates
When interest rates are low, homeowners can refinance mortgage payments to get locked in at the lower rate. Depending on the terms of your original loan, you may be charged a penalty for doing this. If the difference between rates is negligible it may not be worth refinancing.
Changing the term of your loan
Interest rates aren’t the only thing to consider when you refinance a mortgage. If you agreed to a 30-year term when purchasing your property but have since gotten a raise or promotion, you can switch to a shorter amortization period by refinancing your mortgage.
Modifying the clauses and conditions
A typical mortgage agreement contains pages and pages of terms and conditions. Things like pre-payment privileges and cancelation fees might not seem as important as the term and interest rate, but the increased flexibility can be beneficial. If you need to refinance your mortgage to negotiate a better contract, consider using a mortgage broker.
Switching between fixed-rate and variable
Not all interest rates are the same. When financing a mortgage borrowers can choose between fixed-rate mortgages and variable rate/adjustable-rate mortgages. The same options exist when refinancing your mortgage. When rates are low, homeowners with variable-rate mortgages often choose to refinance and lock in at a fixed rate.
Using your existing home equity
If you’ve been making payments for a while, there’s a good chance that your home is now worth more than it was when you paid for it. If you need the cash now, you can take advantage of this by refinancing your mortgage and borrowing against the equity you’ve built.
This can be used for renovations, repairs, or other major purchases. If you borrow against your existing home equity, you will typically get a lower rate than with other mortgages.
As you can see, there are several great reasons to refinance a mortgage but it’s not right for everyone. Talk to a broker today to see if refinancing makes sense for you.