If you want to lower the interest rate on your current mortgage then you may want to consider mortgage refinancing. Lowering the interest that you pay will not only save your money down the road but will also allow you to build home equity faster.
As such, if you want to reduce your monthly payments then you should look into refinancing to a better mortgage as soon as possible. Mortgage refinancing essentially consists of swapping out your old loan for a new loan with better terms.
Here, we will discuss whether or not refinancing to a better mortgage is a good idea.
Reasons to Refinance Your Mortgage
You can lower your monthly installments and interest rate by refinancing your mortgage. The money that you save can then be invested towards home upgrades and renovations that will increase the real estate value of your home.
You can also increase your long-term savings, which you can tap into when you are ready to retire. The money that you save can also be put towards erasing your credit card debts so that your credit score will greatly improve.
You should also refinance to a better mortgage if you want to get rid of your mortgage insurance. If you currently have a loan that was issued by the FHA then you will need to pay mortgage insurance on it.
By refinancing to a better, conventional mortgage, you can eliminate the costs associated with mortgage insurance. You can also combine your debts and loans by refinancing.
A cash-out refinance will allow you to tap into the equity that you accumulated in order to combine your debts and loans in order to make your life easier and more convenient.
You can even refinance your mortgage in order to purchase an investment property. You can use the funds that you have obtained in order to put a down payment on a vacation or a rental home.
When Should You Consider Refinancing Your Mortgage?
With the Bank of Canada lowering interest rates due to the COVID-19 pandemic, you can save more money by refinancing now than you would have in recent years. You can lower your monthly mortgage payment by either increasing your loan term or by reducing your interest rate via refinancing.
You can also opt to refinance in order to get a shorter term. For instance, refinancing from a 30 to a 15-year mortgage may increase how much you pay per month.
However, the interest that you pay on your new 15-year mortgage will be lower. Also, by cutting your term in half, you will be saving quite a bit of interest over time. You will also be able to pay off your mortgage much quicker, allowing you to quickly build equity in your home.
Also, if you have accrued at least 20% equity in your home, then you can refinance your mortgage in order to avoid having to pay mortgage insurance going forward. You should also consider refinancing your mortgage if market interest rates have dropped.
Lower interest rates may translate to lower monthly payments. You may also want to refinance if you want to modify the terms of your loan. For example, you may want to switch from a fixed-rate loan to an adjustable-rate mortgage, or vice versa.
As can be seen, refinancing your mortgage may have many benefits that you can take advantage of.
Use Your Home Equity or Refinance Your Mortgage: Which is Better?
Both home equity loans and refinancing will provide you with access to cash via the equity in your property. If you intend to stay in your home for at least 12 months then refinancing may be the best solution for you.
If you require a large sum of money in order to fund a large project, such as a complete home makeover, then a home equity loan may be the better option.
Refinancing can be used in order to obtain a lower interest rate, which will subsequently reduce your monthly mortgage payment.
In order to determine which of the two is better for you, consider what you intend to use the cash for. You also need to determine how long you intend to stay in your current home, as well as how much equity you have available.
The Takeaway
Mortgage refinancing has many benefits that you may want to consider. Obtaining a better mortgage rate is arguably the main reason why most homeowners decide to refinance their mortgage. Take the time to shop around in order to find the best mortgage rate.
A mortgage agent can help you if you are pensive or confused about how mortgage refinancing works. A mortgage agent is a licensed professional who knows the ins and outs of mortgage refinancing.
They will walk you through all the benefits and possible drawbacks of mortgage refinancing, and will help you choose a better financial strategy in order to help you meet your long-term financial goals.
