ABC about Mortgage Refinancing and saving
First what is Mortgage Refinancing?
Refinancing is the process that pays the existing mortgage and/or any other legal claims against the property and sets-up a completely new mortgage.
Recently I did refinancing my Mortgage and now I am saving about $5000 of interests every year. Current time is the best for refinancing your mortgage. If you are thinking about refinancing your mortgage you are not alone. With interest rates as low as they are, for as long as they have been in Canada, many homeowners over the last little while have debated if mortgage refinancing makes sense for them.
Benefits of mortgage refinancing
It all comes down to saving money. Will you, or will you not save money by refinancing your mortgage?
Kinds of mortgage refinancing
There are a variety of ways that a homeowner may save money by refinancing, like:
1. Lower interest rate.
Find a mortgage at a lower interest rate. If your mortgage is at a higher rate than what is available today, refinancing may make sense.
2. More flexibility
Getting a mortgage product that offers flexibility that you do not already have with your current mortgage; this way penalties and costly interest can be avoided.
3. Fixing Debts
This is good time for consolidating other debts. With rates so low, a person can refinance their mortgage to consolidate other debts that may be at a much higher interest rate.
Drawbacks
What are the drawbacks to mortgage refinancing? In a nutshell, you have to pay some penalties. When refinancing a mortgage agreement, your lender will likely apply a penalty if you are refinancing before your term ends. Depending on the penalty, you may choose not to refinance your mortgage at all. Basically there are three types of penalties: a set flat-fee penalty, a 3-months interest penalty, or an interest-rate differential (IRD) penalty. The type of penalty you have will be outlined in your mortgage agreement.
Best time for refinance
Current time is good time for homeowners to consider refinancing.
- Rates are low, like they are now.
- There are savings available above and beyond just a lower interest rate. For example, if you want to be free to make lump sum payments, increase your payments or change your amortization period and your current mortgage does not offer these features without a penalty.
- You have other, high interest debts (like credit cards), that by consolidating into your mortgage will save you money.
- You want to take out equity you have built up in your home. Often, homeowners refinance because they want to take a loan out on the equity in their home to pay for renovations, start up a business, or pay for their child's post-secondary education.
