If you have been a homeowner for a while now, you might be considering refinancing your home to acquire funds for debt consolidation, to carry out a project or home improvements, or even just to free up some much needed cash. Before you go ahead and refinance, we will look at what refinancing your home is and the benefits it can bring.
What Does Refinancing Your Home Mean?
The definition of refinancing a home is fairly straightforward, it simply means that you will swap your current mortgage for a new one. Your new lender will pay off your old mortgage with a new mortgage and you will continue to pay the balance off each month on the new loan.
What are the Benefits?
There are some benefits to be gained from refinancing when it’s done properly and given a lot of thought including:
Reducing Mortgage Payments
Refinancing your home could lower your current monthly mortgage payments by taking out a new loan which increases the loan term. Your mortgage will take longer to pay off but the monthly repayments will become more manageable.
Shortening the Original Loan Term
If you have the means and are in a better financial position than when you originally took out your mortgage loan, you might benefit from refinancing your home with higher monthly repayments over a shorter period of time. This will help you to own your home quicker and without early repayment penalties.
Building Faster Equity
As mentioned above, shortening the loan term of your mortgage through refinancing will allow you to pay off your mortgage more quickly and this also has the added benefit of increasing the equity on your home. Equity builds up faster on shorter term mortgages.
When Should You Reconsider Financing Your Home?
In some circumstances, refinancing your home just might not be the right option for you at this time. Here are some common reasons you might reconsider refinancing:
You Can’t Afford Higher Loan Repayments
If your budget is already stretched to the limit or you are saving for other things, refinancing your home to a shorter term loan might not be the best move for you right now.
The Closing Costs are too High
Typically the closing costs on a home loan refinance are between 2% and 6% of the total new loan. If you don’t have enough to pay this amount, you might want to reconsider refinancing. Some lenders do allow you to add the closing costs into your loan amount but this could lead to a higher repayment amount or a longer term on the loan.
If you are unsure what to do next regarding refinancing your home, your next move should be to talk to an expert to discuss your individual circumstances. Our mortgage advisors are on hand to offer independent and helpful advice. Book an appointment with our team here.
