Mortgage Refinancing

Refinancing a mortgage is tricky. It can be a really smart move or a move you could regret, depending on the decisions you make. It is recommended to review your mortgage financing regularly to make sure your money is going to the right place but it’s important to make good, educated decisions when considering refinancing your loan.

What does refinancing mean?

Refinancing your mortgage loan basically means taking out a new loan on different terms to pay off the original mortgage. Basically, this means getting rid of the original mortgage by paying it off with the new loan and then paying off the new loan instead.

By refinancing your loan you’re performing a complete overhaul so you do not need to agree to a loan with similar terms. If you initially went with a fixed-rate you have the absolute freedom of choosing any other type of mortgage loan.

So what are the pros of refinancing your mortgage?

  • By refinancing your mortgage you can have lower monthly payments. A refinanced loan may increase the length of your term but will result in lower interest rates and more monthly cash flow.
  • If you’ve lowered your interest rate and monthly payments by a significant amount you may be able to afford to decrease the length of your mortgage term. You would do this by paying a little bit more every month and yet paying less than what you were paying in your original mortgage loan overall.
  • More cash in hand. Refinancing a mortgage means refinancing the amount of your original loan and not the amount of the loan you have left to pay.

What are the cons?

  • Longer loan period. When you refinance a loan, the term usually gets extended. If you refinance a 30 year loan in which there are 25 remaining years with another 30 year loan you are then extending your initial 30 year loan to a 35 year loan.
  • You will be incurring more fees by refinancing. These fees may not be easily recovered through lower interest rates.
  • You may end up taking out a bigger mortgage. By incurring new costs related to the loan and using the loan money to pay for it, the amount of your loan can end up being bigger than it needs to be.

Be cautious!

  • If you’re thinking of refinancing your loan, be sure to do it at the right time. Go in for a mortgage refinancing when you’ve built up some equity in your property. Our advice is that you should make sure you own at least 10-15% of your home before thinking of refinancing.
  • Make sure you have a good payment record. Financial institutions will be weary of granting you a refinance if you’ve been slacking on your payments. Be certain to have a good clean slate in at least the last year before approaching a lender.
  • Be sure your credit score and report are respectable since you were initially granted your mortgage loan. You will not be considered a good candidate for refinancing if you can’t prove that you are able to make timely payments.
  • Do not refinance your mortgage if your home has decreased in value. The refinanced loan will be granted on your property’s current value. Thus, the refinanced loan may hold less value than the initial mortgage loan.