Are you wondering if there is a way for you to save money, borrow money inexpensively, or protect yourself against future interest rate hikes? If you are a homeowner, one strategy that you can employ to accomplish this is to refinance your mortgage.
But before you make the decision to refinance your mortgage, there are a few things that you need to know.
What does it mean to refinance your mortgage?
The simple answer is that refinancing means breaking your current mortgage early and replacing it with another one. You new mortgage can be for the same amount as your current mortgage (so that you can pay off your current mortgage), or it can be for a higher amount (so that you can pay off your current mortgage and receive an additional lump sum of money).
Once you have refinanced your mortgage, you will be responsible for making your regular monthly or bi-weekly payments with interest just as you do your current mortgage.
For what reason would a homeowner refinance their mortgage?
There are a variety of reasons why someone might want to refinance their mortgage, but there are two main reasons: to lower their interest rate or to borrow money at a low cost.
Lower your interest rate: If you currently have a mortgage with a higher interest rate (such as a bad credit mortgage or self-employed mortgage) but you can now qualify for a mortgage with a lower interest rate, then you may be able to save quite a bit of money by refinancing your mortgage and getting a lower interest rate.
Borrow money: Refinancing your mortgage can also be a great way to borrow money at a low interest rate. Typically, lenders will allow you to borrow up to 80% of your home equity with a home refinance. Homeowners use this method of borrow for a number of purposes including home renovations, getting a down payment for another property, and for debt consolidation. Really though, you can borrow money from your home equity through a refinance for any purpose that you choose.
Are there any drawbacks to a mortgage refinance?
The main drawback is that because you will be breaking your first mortgage, there is going to be a financial penalty. The further away your current mortgage renewal date is, the higher that penalty is going to be. Nevertheless, a mortgage refinance may still be able to help you save quite a bit of money, but you should consult with a mortgage broker to make sure the trade off is worth it.
How do I know a mortgage refinance is the right option for me?
The best way to know if this is the right strategy for you is to consult with a mortgage broker. A broker will do a needs assessment and determine whether it makes financial sense for you to refinance your mortgage or if there is another solution (like a second mortgage) that will better meet your needs.
Contact Akal Mortgages today
To learn more about refinancing your mortgage and if this is the right solution for you, contact us today.