Refinance Your Mortgage — Why, How and When?
You may be considering refinancing your mortgage. Mortgage rates are pretty low right now, so why not take advantage of it? But is it a good idea? Let’s us explore and know why, how and when mortgage refinancing
· Get a mortgage at a better rate than the current loan.
· Reduce payments — restructuring your existing loan and repaying it over a longer period can reduce your monthly expenses.
· Consolidate debts by adding an amount to the mortgage to get a lower interest rate than conventional loans or credit cards, reduce total monthly financial obligations, and extend the repayment period. Mortgages can be amortized over a maximum of 25 years).
· Provide cash to make monthly payments or balance the budget.
· Borrow on net worth to renovate the house, buy a car, finance a new property, etc.
How to Refinance?
Penalties and other early redemption fees are virtually unavoidable when you refinance an existing mortgage before the end of its term (typically five years). The purpose of these charges is to compensate the lender for lost income and other costs associated with the early repayment of your mortgage and may wipe out any gain you might expect.
Minimize the penalty by prepaying part of your existing mortgage (most lenders offer the option of paying 15% — 20% of the mortgage balance without penalty). If you are in the first three years of a five-year loan, you can also opt for the weighted rate, which you obtain by combining your previous rate with the current rate, and extend the loan term. This last option can give you a slight advantage or, at the very least, allow you to reach the point of balance.
When to Refinance?
If you add a significant amount to your loan refinancing, the lower rate will apply to the new portion of the loan and the extension of the loan term. Thus, your new weighted rate will be reduced significantly.
Some lenders minimize the amount of the penalty if clients refinance their loan to their institution, and banks also offer to pay a portion of the penalty if the loan is transferred to their home.
This simple calculation tells the user if refinancing is a sensible choice:
Calculate the interest cost of the existing mortgage.
Calculate the projected interest cost in the event of refinancing the mortgage, taking into account the penalties usually added to the mortgage.
Choose the option with the lowest interest cost.
Is mortgage refinancing right for you? Ask your professional advisor, and it will give you the answer that best suits your financial situation and your goals.
REFINANCING TO REPAY PERSONAL DEBTS OR TO RENOVATE ITS OWNERSHIP?
Refinancing could be a solution when a person’s high level of indebtedness is a source of stress and anxiety or even anxiety. On the other hand, such an approach should not become an incentive to consume more, especially if the indebted person has difficulty managing his or her affairs. In such a situation, the amount borrowed should be repaid quickly, and consumer habits considerably modified. In other words, better discipline would be self-evident.
There are various products on the market, including variable rate mortgages and the mortgage line of credit, depending on the needs of each. Typically, lending institutions target clients whose mortgage balance is small, given the value of the property and is in a sound financial position.
Refinancing should be avoided in a systematic way and checked for relevance, because although this is an attractive solution at first glance, this strategy can be risky and of no financial interest. For example, as interesting as it might be for tax purposes, leverage (which is borrowing to invest) is not recommended for all investors.
So do not hesitate to consult your adviser to evaluate all the factors and make sure you get real benefits.