Refinancing their mortgage is something most Waterloo Region homeowners consider at least once throughout the lifespan of their home loan. Doing so allows you to pay off your previous mortgage loan by applying for a new one that has better financial advantages.
While there are many good reasons to refinance your Waterloo Region home, here are five of the most common ones.
Scoring a Lower Interest Rate.
The number one reason homeowners decide to refinance is to secure a lower interest rate on their mortgage. Not only does this save you money in the long run and decrease your monthly payment, but you can start building equity in your home sooner.
Taking Advantage of an Improved Credit Score
Even if interest rates have not dropped in the market, if you’ve improved your credit score over the last few years, you may be able to reduce your mortgage rate. And if you have been paying your mortgage loan on time for a while now that is likely to be the case.
Shortening the Loan’s Term.
If interest rates are decreasing, there is a chance you may get a shorter loan term with little to no change in your monthly payment, allowing you to pay off your loan sooner.
Switching from An Adjustable Rate to a Fixed Rate.
If you chose an adjustable-rate mortgage with great introductory rates when you initially financed your home, that rate may increase significantly over the years. By switching to a fixed rate while interest rates are low, you can protect yourself from future increases.
Cashing Out Home Equity.
If there is a big purchase or payment on the horizon, such as funding a child’s wedding or going back to school, your best option may be to use the equity you’ve built in your home to borrow money at a lower cost than you would pay on a personal loan.
On the flip side of all this, sometimes refinancing is not undertaken for the right reasons and can be a bad move financially. If you are considering refinancing your mortgage for any of the following reasons you might want to think again:
To Consolidate Debt
This can be one of the most dangerous financial moves any homeowner can make. On the surface, paying off high-interest debt with a low-interest mortgage seems like a smart move, but there are some potential problems.
First, you are transferring unsecured debt (such as credit card debt) into debt that is backed by your home. If you are unable to make the loan payments, you can lose that home. While nonpayment of credit card debt can have negative consequences, they are usually not as dire as a foreclosure.
Second, many consumers find that, once they have repaid their credit card debt, they are tempted to spend again and will begin building up new balances that they will have more trouble repaying.
To Move into a Longer-Term Loan
While refinancing into a mortgage with a lower interest rate can save you money each month, be sure to look at the overall cost of the loan. If you have 10 years left to pay on your current loan and you stretch out the payments into a 30-year loan, you will pay more in interest overall to borrow the money and be stuck with 20 extra years of mortgage payments.
To Save Money for a New Home
As a homeowner, you need to make an important calculation to determine how much a refinance will cost and how much you will save each month. If it will take three years to recoup the expenses of a refinance and you plan to move within two years, that means despite the lower monthly payments, you are not saving any money at all.
One of the best ways to decide if refinancing your Waterloo Region home is the right move for you is to discuss the idea with an independent mortgage broker. They can help you decide if the move makes sense for you and, if you find it does, help you find the best possible refinancing option available.