If you own a home and are looking to get a better interest rate or terms for your mortgage, it might be time to consider refinancing your mortgage. With a mortgage refinance, you basically trade in your old mortgage for a lower interest rate, lower monthly payments, and/or a shorter payoff on your loan.
Why should you Refinance your Mortgage ?
There are a few different reasons you might want to get pre-approved from your current mortgage lender to refinance your mortgage.
- Get a lower interest rate – Refinancing your mortgage can incur a slight penalty, but if the interest rates are looking really good when you refinance, it could be worth the penalty fee. If you currently have a variable rate mortgage, you could usually expect to pay three months of interest, and the penalty for a fixed rate mortgage will be either your interest rate differential (IRD) or three months of interest. Either way, with lower interest for the rest of your mortgage, you could save a lot of money.
- Consolidate all your debt – Refinancing your mortgage can allow you to consolidate a number of debts, such as credit cards, lines of credit, and/or car loans. This will let you simplify your life and may give you a better interest rate on paying back your other debts, as well.
- Take advantage of your home’s equity – Want to take out a HELOC (home equity line of credit) to do repairs, upgrades to your home, to pay for your child’s college tuition, or any other investments? You can get access to up to 80% of your home’s value (minus outstanding mortgages) with a refinance.
- Purchase an Investment Property - You could take advantage of the equity in your current home and purchase an investment property at a lower interest rate.
- Get financial relief for other expenses - you could take advantage of mortgage refinance for renovating your home, pay for a child's tuition, take care of an elderly family member or cover medical expenses. Your home is an asset and it could help you get financial relief when you need it most.
How to Refinance Your Mortgage in ?
If you’re interested in refinancing your mortgage, you have a few different options to choose from:
- Get a HELOC – With a HELOC, you can gain access to your home’s equity in cash and use it as you see fit. You’ll only be responsible for paying down what you spend on the HELOC, and you’ll likely have a very low interest rate. This is a great way to pay off debts with higher interest rates.
- Cancel your current mortgage – This will actually eliminate your current contract for your mortgage and replace it with the refinanced mortgage. In this case, you’ll end up paying the penalties we discussed earlier, but it may still be worth it for a better interest rate and terms.
- Get a Blended Rate – Basically, with a blended rate, your current mortgage provider would blend your current interest rate with the interest rates on any additional money you borrow at current market rates. In this case, you’ll likely see a minor increase in your interest rate, as blended rates are almost never quite as competitive as current market rates. However, if you have a high interest rate that you’re trying to bring down, this could help you out.
How much does Refinancing Cost ?
Your refinancing costs are going to differ depending on how you decide to refinance your mortgage. Whichever method you choose, the costs you should consider are appraisal fees, title search, insurance, legal costs etc.
If you’re taking out a HELOC, you likely won’t have any additional costs besides paying back what you spend on your line of credit. However, if you’re breaking your mortgage to get access to your home equity or to get a lower interest rate , you can expect to pay a penalty of at least three months’ interest or an IRD payment (as we mentioned earlier).