Mortgage Refinancing

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Mortgage Refinancing

With all the offers of mortgage refinancing by local mortgage companies, we share some thoughts on the subject and invite subject matter specialists to add their advice.

A mortgage refinance usually refers to the replacement of an existing mortgage with another mortgage under different terms. The mortgage refinance can either be with the existing bank or new lender. The terms and conditions of refinancing may vary widely, depending on the institutions involved.

‘A mortgage might be refinanced for various reasons:

  1. To take advantage of a better interest rate (a reduced monthly payment or a reduced term).
  2. To consolidate other debt(s) into one loan
  3. To reduce the monthly repayment amount (often for a longer term, based on interest rate differences and fees).
  4. To reduce risk (e.g. switching from a variable-rate to a fixed-rate loan).
  5. To free up cash (often for a longer term, because of interest rate difference and fees).’

(adapted from Wikipedia)

Mortgage refinancing can provide considerable benefits if approached correctly and for the right reasons.

If you are considering mortgage refinancing, think carefully why you are embarking on this course of action and refer to the reasons quoted above. Only when you are clear on why you are refinancing your mortgage, can you assess if the deal is right for you. When you are clear on the reason for refinancing, then balance the benefits towards your reason(s) against the downsides that will be inevitable.

If you have decided to refinance your mortgage, take time to shop around. Seek more than one quote, compare and bargain for the best possible deal. There are some attractive offers out there and companies may be willing to fine tune their generic offer, if you bargain strongly.

The mortgagors will insist on an appraisal, choose a highly recommended real estate valuator, with a good track record for fairness and efficiency.

If you are considered taking cash out of the equity of your property, make sure the cash is being used for a valuable investment. We suggest paying off short term loans or investing in another property. Do not use the proceeds for speculative activities or for holidays.

Before you sign on the line, read the fine print. Often hidden costs are not advertised. What are the closing costs inclusive of all fees?

Do not be put off by small reductions in monthly payments. Even $100.00 less per month can be big when valued over the life of the mortgage. Take for instance, a savings of $100.00 per month over fifteen years, is equal to a savings of eighteen thousand dollars over the life of the mortgage.

There are always fees. The challenge is to be on the look-out for excessive or hidden fees and balance the additional fees against the savings with the new mortgage. Take the time to tally all the additional fees for closing, along with any penalties for paying off your existing mortgage early, and offset it with the monthly payment savings over the period of the new mortgage.

A mortgage refinance also offers the opportunity to pay down your outstanding principal. Some mortgages have a limit on the additional amount you can pay towards your principal each year and mortgage refinance can allow you to make a lump-sum payment towards the outstanding principal. This lower outstanding sum, together with a lower interest rate, can significantly reduce your monthly payments over the longer term and bring considerable savings.

At present, there are many opportunities for mortgage refinancing available. It may not always be so. If you believer this initiative can be beneficial to your situation, take the time and explore the options available and make a wise decision. Happy Financing.