Mortgage refinancing, what do i need to know?
Buying a home is an expensive story, and paying off a mortgage can cost an arm and a leg. So if there is an opportunity to reduce the percentage of your income which gets drawn out by the mortgage, shouldn’t you investigate that opportunity?
Done properly, refinancing a mortgage can serve to reduce your existing monthly payments, allowing you to consolidate dept by saving money in the long run and freeing up capital for other expenditures.
So what does mortgage refinancing entail?
Put simply, refinancing refers to the application of a new secured loan with the aim of paying off an existing mortgage provider. The new loan is usually secured against the same property. Securing a new loan at better rates can save you money, as will be explained below.
When should you consider refinancing?
If you have a mortgage and think that you are paying too high an interest rate, refinancing could be beneficial. Remember, however, that refinancing entails the payment of certain administration fees, so it is best to calculate the savings you will make by paying better current mortgage rates, while putting them into perspective by making sure of the refinancing fees. If done at the right time, you will be sure of the choice as your calculations will show significant benefits, doing the world of good to your bank balance.
How does refinancing benefit you?
A mortgage payment is likely to be your biggest monthly expense, so a reduction of this expense will put much needed extra cash into your pocket. When you bought your home, the financial environment of the time decided the interest rate you would pay per month. Interest rates, however, do have the tendency to fluctuate and if you refinance your mortgage when interest rates are lower you are able to reduce the monthly interest you pay.
Taking the decision to refinance your home mortgage can also shorten the term of your payments. This can be done by maintaining a similar monthly instalment while paying less interest and building your equity, since more money will be going to the actual capital debt.
If you bought your house on a flexible mortgage deal, or on an adjustable rate, it may have seemed a sweet deal at the time, however, as the rates increase the deal may have soured in taste. If you have become stable financially and plan on staying in your home for a long time it may be beneficial to swap to a fixed rate. This will give a greater degree of security, lessening the impact of a fluctuating market. The best mortgage deal varies according to individuals’ requirements.
Another option is to refinance your mortgage for a greater sum than your current principle balance; this allows you to draw out some of the cash. This may prove handy for renovations or paying for the children’s education. Normally you need to have built up some equity to make this a viable option.