When to Refinance your Mortgage

Refinancing a mortgage refers to the process of paying off an existing mortgage loan by taking a new home loan. The main advantage of refinancing a mortgage is that it helps save money, but this isn’t always the case. Given the fees and closing costs that need to be kept in mind, which might amount to 3 and 6 percent of the original loan, refinancing a mortgage may not always hold advantages for you. If you are considering it, make sure you know when to go about it – determining the exact point when you decide to refinance your mortgage is crucial, as you need to determine how much you will be gaining, and whether you will be able to save enough to make up for the expenses you will incur at the outset of the refinance. Refinance only when home values are up and interest rates are down.

Start by identifying your refinancing goal, and determining what are you hoping to achieve. Are you looking to:

• Seek a lower interest rate? This is one of the main reasons why people consider refinancing. If you obtained your mortgage at a time when the rates were high, and a time comes when the rates go incredibly low, you might consider refinancing, particularly if the value of your home is less than the amount of the loan you took out.
• Adjust the term of your loan? Refinancing can help you shorten the term of your loan and this can save you a lot of money if done right.
• Move out of an adjustable rate mortgage (ARM)? An ARM is a type of mortgage that changes year to year, according to the market trends. This can be fairly unstable, so if you have one of these, you should consider refinancing to a fixed rate mortgage.
• Tap into your home’s equity? If you are looking to consolidate your debt, or obtain some quick cash, you can consider refinancing your mortgage. The money in your home’s value can be used for a large expense, like college tuition fees.

Once you have decided what your goal in refinancing your mortgage is, focus on determining whether a refinance is a financially sensible decision.

• Refinance your mortgage one time only – Continually refinancing is a bad decision, as this might set you back instead of earning you money, owing to closing costs. Keep a close eye on financial news, so you can refinance the moment the interest rates go down.
• Understand your current mortgage and financial status – Know your own financial situation, so you can determine whether you are in a position to profit from refinancing. Study your principal balance, monthly payment and interest rate, and have a look at your credit score, to see if you will be considered for a favorable refinancing offer.
• Use a mortgage broker – Hiring a broker is well worth the fees, as a broker will help you find the best possible rates, and may also aid you if you happen to have a rocky payment history. Look for reputable brokers in your particular province in Canada, to get the job done.
• Look for a refinance offer that locks in your rate – Be sure to take this locked in guarantee from the lender in writing. This will ensure you benefit from the refinancing process.