Why should you refinance?
Refinancing
has become a valid option for many individuals with high
interest rates on their mortgage. Refinancing
is essentially a replacement loan, with a
different lender and (hopefully) a lower interest
rate.
So why would you choose to refinance?
- You may be able to take advantage of lower interest
rates.
- You may also be able to extend the repayment period
of your mortgage. While you will end up
paying more in interest charges for this, this will
reduce your monthly outgoings.
- You may be able to switch from a variable rate to a
fixed rate mortgage, giving you greater security in
the future from potential rate increases.
- You may also be able to increase the amount of your
mortgage, to pay off other, higher interest rate
liabilities such as credit card debt, cell phone debt
and personal loan debt. This will enable you to save
money on interest rate charges
Why would you avoid refinance?
If you decide to borrow more than your existing
mortgage, you need to be wary of your budget. If you
default on your payments you run the risk of losing
your house.
If you do not calculate the costs involved with
refinancing correctly, you could end up paying more
in interest charges.
Thoroughly review the contract of your existing loan,
an early pay out could involve a penalty that would
negate the benefits of refinancing.
What will it cost me?
Refinancing does carry some costs
that you need to be made aware.
Valuation Fee – This is the fee for a professional
appraisal of the value of your house.
Credit Report – An assessment of your credit health
Escrow – Fee for money transferred by a third
party.
Lender Fees – Any other fees that are incurred by
using a particular lender
Am I eligible?
Applying for mortgage refinance is just like applying
for another loan. There is a set criteria for
acceptance. Every missed mortgage payment will count
against you in the application, either resulting in a
greater interest rate or a refused application.
Should I choose refinancing?
You will need to assess your current mortgage and the
changeover costs and savings to ascertain whether it
will be of benefit to you. There are specific
refinancing calculators that can help you determine
the net gain.
As a rule of thumb many lenders advocate that a 1%
gap between your current interest rate and a
refinance rate makes refinance a worthwhile option.
Always make sure to speak to a financial professional
before deciding to refinance your mortgage.
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Mortgage Refinance Guide