What is Refinancing?
Refinancing is the process of taking out a new loan to replace your previous mortgage. This typically results in reduced interest rates, different loan terms, or extra incentives like cash out for spending.
Although you can refinance at any time, refinancing your home at the right time can result in long-term savings. Refinancing comes with some cost however in some circumstances the cost outweighs the long term savings.
When is a good time to refinance?
- When interest rates are lower: Refinancing might be a suitable choice if rates have decreased since you first took out your mortgage. Your monthly payments may be reduced by refinancing, and you may end up paying less in interest over time.
- When your credit has improved: If your credit rating has increased since you first obtained your mortgage, refinancing can be an option for you to acquire a cheaper interest rate. Additionally, this can help you save money over the long run on interest and monthly payments.
- When you wish to modify the loan’s term: Refinancing could be a suitable choice if you want to shorten the time it takes to pay off your mortgage or increase the size of your loan.
How do I calculate the break-even point for a refinance?
You must think about the costs of refinancing and how long it will take you to recoup those costs through reductions in your monthly mortgage payments in order to establish your refinance break-even point.
You can determine your refinance break-even point using the following straightforward formula:
Total refinancing costs minus monthly payment savings is the break-even point for refinancing. We can run reports that show you the details, just call us.
Advantages of Refinancing
- Possibly saving money: When interest rates are low, homeowners frequently remortgage in order to reduce their monthly mortgage payments. Debt consolidation is also a great way to save money. By consolidating high interest debts into your mortgage you will be saving by making one payment at a reduced interest rate.
- You might be able to repay your loan more quickly : It can make sense to refinance into a shorter amortization if your income has increased since your last refinance. A reduced amortization will shorten the time needed to pay off your mortgage which will result in a lesser interest portion at the end of the amortization.
- You may be able to get the money you require: You might be able to use the equity in your home and do a cash-out refinance to get the funds if you have a significant bill coming up.
Conclusion
The decision to refinance ultimately comes down to your financial goals. Whether you are consolidating to save on interest or increasing your mortgage to take some equity out, we have you covered every step of the way.
Get in touch with us at 416-410-7501.
