‘Should I refinance my mortgage?’ – a question that many home owners ask when they hear and see lenders advertising great refinancing deals for mortgages. Refinancing your mortgage can benefit you in many ways like reducing the interest rate on your mortgage, extending or shortening the loan tenure, or by simply releasing extra cash by lowering your monthly loan payments. However, the refinancing option should be exercised with great caution as not in every case does refinancing a mortgage has the desired benefits.
Why Should You Refinance Your Mortgage?
There can several reasons as to why you would like to refinance your mortgage, some of the common ones are:
- Market lending rates have fallen and mortgage interest rates are currently lower than your existing mortgage rate
- Your credit history has improved and you are likely to get better mortgage interest rate than your current high rate
- You want to move to a fixed rate mortgage to protect yourself from future interest rate fluctuations in your existing variable rate mortgage
- You wish to lower your monthly burden of high mortgage payments and move to a refinanced mortgage with lower monthly payments by extending the repayment period
- You have too many debts and want to consolidate them to get financial benefit of a combined lower monthly payment
The bottom line is that you should consider refinancing your mortgage if you are likely to gain some financial benefit out of the exercise and are able to lower your financial burden.
It is important to
evaluate the refinancing option carefully, taking into account both closing and opening costs of the old and new mortgage. This is important as these switching costs can sometimes be prohibitively high and outweigh the benefit of lower interest rate of the new mortgage. Similarly, you should also carefully study the terms and conditions of the new mortgage to ensure that you are indeed getting a better deal than your previous one.
When is a Good Time to Refinance Your Mortgage?
While the above mentioned reasons are sufficient grounds for refinancing, you must consider a few other things as well. A good time to refinance your mortgage is when you have adequate equity built up in your house. This is important as the greater the equity you have in your house, the better is the likelihood of getting good interest rates on your refinanced mortgage.
You should also find out if the prevailing interest rates are significantly lower than the rate you are currently paying. The best time to consider mortgage refinancing is when the interest rates are at a low level as compared to the recent past.
While refinancing is a great opportunity to get a better deal on your mortgage, it is important to get expert advice on whether it is really going to be beneficial for you and what are the alternatives that you can go for. Discussing your financial situation with an experienced and trustworthy mortgage broker is one of the best ways to get the right answer to the question – ‘Should I refinance my mortgage?’