Refinancing your mortgage is not an easy decision to make no matter how many people around you have done the same and things turned out fine. The decision is a personal one and best made when you’re fully informed of the things you need to know when refinancing your mortgage.
What is Mortgage Refinancing?
Mortgage refinancing is when a homeowner gets a new loan on a home complete with new terms. It is usually done to get better terms or to change the length of the loan although some homeowners opt for it to free up some cash by accessing some of the home equity. Some homeowners refinance their mortgage to a shorter-term loan to build home equity faster or to save up money that could have gone to paying for interest. Others refinance their mortgage to a longer-term loan with lower monthly payments so they can allocate some of their monthly budget for other expenses.
When Is it Smart to Refinance Your Mortgage?
Refinancing your mortgage is a huge decision that can have a huge impact on your finances over the long-term. You need to consider what you can afford to pay per month as well as applicable interest rates to make sure that you’ll come to a decision that will serve your best interest. It will be best to talk to a mortgage professional to be fully informed of the pros and cons of mortgage refinancing as well as other financial solutions that can work for your needs.
One of the main factors to consider is whether the cost of mortgage of refinancing will be worth it for you. There are upfront fees that will have to be paid and you need to be sure that you can recoup the cost of the fees. You’ll also have to consider timing. Interest rates in Canada are bound to increase soon so while you won’t want to make a hasty decision, it is better to make up your mind as soon as possible as well. If you have a better credit score now than when you first got your mortgage, you’ll be able to get a better interest rate too.
When Is It Not Smart to Refinance Your Mortgage?
Having low equity is not a good time to have a mortgage refinance. The same goes for when you’re in a bad financial situation or when your credit score has gotten worse. If you’re planning to move soon or will have a major change in your career, it will be better to wait for better timing. Lastly, it will be best to ask a mortgage professional for computations to have an idea whether potential benefits will outweigh the cost and effort of refinancing your mortgage. A good mortgage professional will also be able to negotiate better terms for you should you decide to refinance your mortgage.