A mortgage refinance can be a good idea when you're trying to overcome financial hardship. While this type of loan isn't suitable for everyone, it can benefit your situation. Refinancing your mortgage means that you take out a new loan to pay off the old one. When refinancing, it's important to remember that it is only a good option it saves you money and you are financially responsible for the new loan.
Refinance when you need to lower your monthly payments
Refinancing your home is a good option for many who need to lower their monthly payments. When you refinance, you can negotiate for a longer amortization period up to 40 years, and you can negotiate for a lower interest rate. Changing these loan terms can lower your monthly payment amount, and free up some cash flow.
Refinance when you need to pay off your mortgage sooner
Many people decide to refinance their mortgage when they need to pay it off faster. The main benefit of refinancing at a lower interest rate and lower monthly payment is you can use the extra cash to pay down the principal balance. Therefore, paying off your mortgage sooner.
This approach is done by many homeowners who are looking to pay off their mortgage faster.
You can refinance with a new lender or with your current lender. When comparing mortgage terms, it is best to get help from a mortgage broker to identify the different benefits that each lender can do for you.
Refinance when you need to get out of high-interest debts
Another reason to refinance is when you need to get out of high interest debts and save money. You can tap into the equity in your home to consolidate these high interest debts.
Debt consolidation with refinancing works by using the refinance proceeds to pay off the high interest debts. Since now you are paying less interest, your debt service amount is smaller. You are saving money by paying less interest while paying down the principal balance each month.
The key to successful debt consolidation is to make sure the new mortgage has a lower interest rate than the debts you are consolidating.
What to know before refinancing
Check your credit report to fix erroneous information
Before you decide whether to refinance, it is important to check your credit score and credit history report. By checking your credit report, you can see if there is erroneous information on your report. Mistakes in your credit report can stop you from qualifying for the best rate possible. You can do this by requesting your credit report for free every year from one of the credit bureaus in Canada.
Estimate the closing costs
Once you've determined the purpose of refinancing, you'll want to look into the closing costs. Closing costs can run anywhere from 1% to 3% of the loan amount, excluding any prepayment penalty amount from your current lender.
Estimate the prepayment penalty amount
A prepayment penalty can be avoided if you refinance after the term has reached maturity. Your current lender will charge a prepayment penalty if you refinance to a new term before the current term reaches its maturity date. Your current lender considers this as breaking the current contract, hence the prepayment penalty.
Frequently asked questions when refinancing my house
Is an appraisal required for a refinance?
It depends on the lender. But generally speaking, expect that an appraisal is required for all refinance transactions.
When you refinance your home, the lender will order a new appraisal to verify the current market value of your property. The new appraisal will help lenders calculate how much equity is available in the property for refinancing.
How soon after purchase can I refinance?
In general, you can refinance your home anytime. But depending upon the terms of your initial agreement, your lender may charge a prepayment fee if you refinance before the term reached maturity.
In most cases, the fee is either three-month interest or the Interest Rate Differential calculated based on the current posted interest rate. To find out the amount of the prepayment fee, speak with a mortgage broker who can calculate the prepayment penalty for you.
How much lower interest rate is worth refinancing?
First, you'll need to make sure refinancing is right for you. You should refinance if your current interest rate is higher than what you can get now, or if your credit score has improved since you got your current mortgage, so you can qualify for a better rate.
If your current interest rate is 0.5% higher, then it is worth the effort to qualify for a refinance. Bear in mind that there can be a prepayment penalty to take into consideration.
A mortgage broker will be the best resource to calculate the breakeven interest rate for your interest rate. You can also ask to be informed when the going interest rate has dropped lower than the breakeven interest rate so you can take advantage of the savings right away.
Work with Jermaine Hinds - Mortgage Broker | Matrix Mortgage Global
Matrix Mortgage Global (Lic. #11108) has access to over 100 different lenders. Not only will we compare interest rates to get you the best deal possible, but we also compare terms and help you understand those terms. You have access to a wide range of lending partners who are ready to offer you various mortgage solutions, including mortgage renewals, refinancing, second mortgages, home equity loans, bridge loans, and other specialized mortgage products.
Jermaine Hinds, Mortgage Broker Offers Personalized Solutions for Home Buyers and Homeowners
Jermaine Hinds, Mortgage Broker believes in delivering results to clients with their best rate and solutions possible. He has built his reputation around helping people and getting them mortgage financing that fits their situations for the long term. The collective knowledge and experience from Jermaine and his team will help you achieve generational wealth through real estate.
