When should you Refinance Your Mortgage Loan?
You might have heard of the term refinanced mortgages if you have ever dealt with mortgage rates in Canada. However, do you know what the term actually means? It is important to know how this aspect will work where your mortgage is concerned. Therefore it is best that you know how to calculate it and what it will cost you in the long run. Who knows? You might be safeguarding yourself against legal fees and mortgage penalties during the course of your mortgage.
There are a lot of reasons why homeowners might decide to refinance their mortgages. Some of the many reasons why are as follows –
Your home can serve as insurance when you are in a bind. A homeowner might be compelled to refinance a mortgage in order to receive cash for a lot of reasons. For example, you might want to purchase another property or need money for emergency situations.
Refinancing allows you to borrow up to 80% of the original value of your home. This does not include what you owe.
To Utilize Favorable Mortgage Rates
You can choose refinancing in order to take advantage of better mortgage rates that are available especially if your existing mortgage happens to be higher than the standard rates. However don’t be too quick to jump on the chance. Such options also come with their fair share of potential penalties.
For instance, you will have to pay three months’ worth of interest if you have a variable rate. In the case of fixed rates you will have to pay an amount that is greater than that or the IRD (Interest Rate Differential).
Needless to say it can be worth your while to refinance your mortgage to get better rates provided that your penalty isn’t too high and you will be left with substantial savings.
Fix your Mortgage
Variable rates can spike at a moment’s notice. This is an inconvenient prospect for homeowners to say the least. If you are on a budget and are on a variable rate, refinancing can help you lock in your mortgage in a fixed rate. Such an initiative might pay off in the not so distant future especially if interest rates rise unexpectedly.
Pay off Debt
Homeowners might take advantage of low mortgage rates to pay off high interest debts by refinancing their mortgage. Such an option can help you consolidate major debts like high interest credit card debts or loans and at a lower interest rate.
Regulate your Amortization Period
As discussed, refinancing your mortgage can come in handy when you are short in finances. You might have lost your job or need cash for some other emergencies. Refinancing will help you decrease your mortgage payments and lengthen its amortization period.
However you can also choose to shorten your amortization period in order to pay off your mortgage faster. This way, refinancing provides homeowners financial flexibility.
Now that you know how refinancing mortgage rates work you can consider utilizing it if your finances fail you.