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Refinance or Not to Refinance?

Refinance or Not to Refinance
Refinance or Not to Refinance

In today’s market many people are considering their options with such low rates.  Have rates hit rock bottom?  Do you think rates are going to rise?  Are you looking for a different mortgage product?  The answers to these questions will help with whether refinancing your current mortgage today is the right thing to do.

Before you make this decisions you need to be clear on what refinancing your mortgage involves.  Your home may be your biggest financial asset so you want to choose the right lender, the right product and the right mortgage broker.  Remember that refinancing can be beneficial, but along with its benefits, comes costs too.  If you remember the first time you set up your mortgage,  you may encounter similar costs and procedures.

When you refinance,  you pay off your existing mortgage and create a new one.  If you have a first and second mortgage, often its a good time to consider paying both of them out and amalgamating them into one.  

The interest rate you are currently paying is tied to your current monthly principal and interest payments.  Lower rates mean lower monthly payments.  Dependant on your current credit and application will determine your lowest rate option.

Lets compare;

A Mortgage of 100,000.00 with a Term of 5 year fixed and Amortization of 30 Years
Monthly Payment based at old rate of 5.75% = $579.28    
Monthly Payment based at New rate of 3.99% = $474.96    
Difference in monthly payments = $104.32        
Interest savings over the 5 year term = $8556.20       


Another option for you to consider is refinancing your mortgage to this new rate and keeping the payments the same as if you were still paying the old rate.  Your then making extra principal payments every months and this will help you save THOUSANDS of dollars  in interest over the life of your mortgage.


Just by paying an extra $100.00 per month towards principal will reduce your 
amortization by 3.3 years and save your $10,792.95 in interest.    

Another cost to consider is your current mortgage may have a prepayment penalty.

A prepayment penalty is a fee that lenders might charge if you pay off your mortgage loan early, including for refinancing.  If you are refinancing with the same lender, ask whether the prepayment penalty can be waived.   Penalties are not normally something lenders will “waive”  but what they may offer is to blend your current rate on your mortgage with today’s rate, so in turn your not paying a penalty “up front” but remember its in there, its been built in to the new “blended” rate.    Again you want to weight the option whether its worth paying the penalty outright or having it blended into the new mortgage.      Paying a prepayment penalty will increase the time it will take to break even, when you account for the costs of the refinance and the monthly savings you expect to gain.  A mortgage broker can walk you threw how to obtain such information at the time of refinancing and will make sure that all your costs are carefully weighed for the best possible options available.

If your considering refinancing to take advantage of lower rates to payout high interest rate debt this is another good reason to consolidate into one monthly payment.  Reality is that it takes consumers longer periods of time to pay down high interest rate cards based on their monthly minimum payment commitment.  As interest rates run on credit cards anywhere from 10% – 20% and your paying much higher interest costs, and your monthly payments are high, refinancing can save you thousands of dollars – definitely something to consider.

Determining your eligibility for refinancing is similar to the approval process that you went through with your first mortgage.   The lender will consider your income and assets, credit score, other debts, the current value of the property, and the amount you want to borrow. Based on your credit will determine what type of rate we can offer you. On the other hand, if your credit score is lower now than when you got your current mortgage, you may have to pay a higher interest rate on a new mortgage but there is still options available for you.

Lenders will also look at the amount of the loan you require and the value of your home, determined by an appraisal. If the loan-to-value (LTV) ratio does not fall within their lending guidelines, they may not be able to offer as much money as you originally requested or not be interested in the loan at all.

Choosing a mortgage may be the most important financial decision you will make. You should get all the information you need to make the right decision.  A mortgage broker can do this for you and walk you through the costs associated with refinancing to make an informed decision.  I work for YOU not the lender.

Author- Lisa Alentejano
Author- Lisa Alentejano


Finance/mortgage industry professional located in the Interior BC First Time Buyer Challenged Credit Second Mortgages Line of Credit Refinance Renewal Lets talk about your financing needs today! Great rates and Great Service!

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