Many people find financial decisions tough to handle because it involves a lifetime of savings. Mortgages confuse them because they’re unaware of the industry. That’s why they end up thinking about property investment as a risky business to jump into.
When used wisely, combining debts with a mortgage is among the very best methods to gain financial obligation relief. Such as refinancing to take advantage of lower interest rates, switch to a new mortgage company or cash out equity for home renovations. Refinancing can be beneficial.
“Lower your monthly payment!” “Refinance and save!” There seem to be engaging promotions about mortgage refinancing everywhere you turn. But do you know which is the right approach for your situation and the relative expenses? If not, then read on to help you make informed wealth-building decisions.
Refinancing: What’s in it for you?
Many people often get skeptical about refinancing a mortgage, thinking the process to be full of hassles such as completing hefty paperwork or paying that pesky refinance fee. But the benefits of restructuring your debt for lower interest rates may help you save thousands of dollars.
Here are the reasons why mortgage refinancing can be a good choice:
- Lower your mortgage rate
This is the most popular reason why homeowners refinance a home loan. If your interest rate is high, you’ll be paying more for your mortgage both now and in the future. Mortgage rates fluctuate inevitably.
Luckily, refinancing allows homeowners to reduce their interest rates so they can enjoy a lower monthly payment. It’s a no-brainer that everyone will agree on.
- Tap into your home equity
Homeowners build equity in their home when they make payments on their mortgage. Home equity is the difference between your property’s market value and the outstanding balance of your mortgage plus any other debts secured against your property.
Another reason borrowers look to refinance an existing mortgage is that they’re looking to use the equity they have in their existing property to borrow money for a number of purposes.
These can be to pay for a major home renovation, to maximize their investments or to consolidate other debts.
You can refinance your mortgage and access up to 75% of your home’s appraised value in cash if you need funds.
Click on this article for more about Home Equity Loan.
- Consolidate your debt
Whether from credit cards, auto payments, student loans or another source, it’s an unfortunate reality that homeowners are weighed down by debt.
If you want to get on top of your existing debts and pay them off at a more affordable rate, then consolidating debts through refinancing can be a good option.
Multiple high-interest loans that have to be paid each month can be overwhelming. And the best road out of this situation is by consolidating your debt into one loan.
Methods of Refinancing your Mortgage
If you want to consider refinancing, you can consider one of these three actions:
- End your existing mortgage contract early
If you want to get a lower interest rate or to access the equity in your home, then breaking your existing mortgage is the first step. You’ll eliminate your existing mortgage and take on a new one with a lender of your choosing depending on approval.
- Add a home equity line of credit
If you’re a homeowner, you might need funds to help your child pay for college, renovate an aging kitchen or pay off high-interest debts. This method applies to you.
A home equity line of credit will give you access to the equity in your home. You’ll be accountable for paying only the interest each month on the outstanding balance.
The home equity line of credit can be accessed through your existing lender or a small subset of other lenders.
- Blend and extend your existing mortgage
If you wanted to access a lump sum of equity and obtain a lower rate on a new mortgage, you could break and blend your mortgage.
By doing this, you’re paying off your current mortgage and setting up a new mortgage entirely. A “blended rate” can be offered by your existing mortgage lender and this can be added to your current mortgage rate as well as any additional money that you are borrowing at current market rates.
Most of these rates are always higher than most of the competitive mortgage rates out on the market. So, to make a worthwhile decision, make sure that you compare the blended rates against the savings if you break your mortgage.
Costs of Refinancing Your Mortgage
Refinancing fees depends on the method you’ll use to access your equity or to lower your interest rate. Regardless of what you have chosen, make sure you factor these common legal costs into consideration:
- Mortgage prepayment penalty
Paying for a mortgage prepayment penalty is required if you need to pay off your mortgage early. However, you don’t have to pay for a penalty if you’re refinancing while your mortgage term is up for renewal.
- Mortgage discharge fee
Switching from your current lender to a new one requires a homeowner to pay a mortgage discharge fee. Discharge fees vary by lender. Check out the chart below to see how some lenders set their fees:
- Mortgage registration fee
The mortgage registration fee applies whether you’re leaving or staying with your current lender. The refinancing process requires your lender to remove the current mortgage amount from the title on your property and re-registering it with a new mortgage amount.
- Legal fees
Taking legal guidance from a real estate lawyer is needed when refinancing. It’s the lawyer’s job to complete a title search to make sure no liens have been made against your property, review your mortgage loan, its terms and conditions and register the new mortgage.
Choosing the Right Lender
Refinancing is very important concerning your finances and long-term homeownership. If you’re interested in refinancing, get your questions ready. Choosing a knowledgeable mortgage broker that is attuned to your individual needs and circumstances is essential before embarking on the process.