While many people may think that refinancing a mortgage at its lowest rate is the best solution, it may not always be the right choice. Experts advise that before making any critical decision regarding mortgage refinancing, you need to put some thought behind choice and timing. You may end up in situations that make you refinance a mortgage on multiple occasions and that may significantly reduce the overall financial benefits anticipated. If you give it some thought, the penalty for moving on to the next mortgaging option with a lower rate involves paying a hefty price for leaving behind a trail of closing costs.
So, what does this mean? Should you just stick with your current mortgage even when things seem favorable? The truth is that mortgaging refinancing makes sense only in some instances. In other cases however, you only do yourself a great favor by sticking to the current mortgage. Here is more on finding a good timing for mortgage refinance.
Set your goals straight
All your goals need to be straight and clear enough before making any choice concerning mortgage refinancing. Keep in mind that refinancing is not a solution that pays off the debt. On the contrary, it merely restructures how you pay back the mortgage. The changes usually affect the rate and loan-term for the mortgage. One of the conventional objectives for refinancing has a lot to do with reducing the interest expense and the loan- term. Still, some homeowners appreciate extending their loan-terms if it means reducing the expense.
The other objective that makes people settle for refinancing solution entails consolidation of debts. For instance, a homeowner may have a home equity loan and a first mortgage. A combination of these mortgages (to form one fixed-rate mortgage) goes a long way to level out the payment for a loan-term.
More importantly, a significant number of homeowners will refinance because they want to do away with adjustable-rate mortgages. In environments that favor high-interest rate mortgages, adjustable-rate mortgages work better for homeowners. On the other hand, if the environment merely has low-interest rates, many homeowners will prefer to go for fixed-rate mortgages to reduce their expenses.
Right timing for mortgage refinance
When you have all your objectives set straight regarding refinancing, the next thing to do is looking at the circumstances and timing to see if it is viable to acquire a new loan without compromising anything. Even if there may be a little compromise, it should not have a terrible impact on your financial standing.
This implies that when planning, you need to consider all the savings relative to the cost and figure out the exact length of time that you are going to be in a property. Refinancing makes sense when you plan to be in a property for a certain period. The other thing that you need to determine when considering refinancing is the length of time (preferably in months) of lower payments that suffices to recoup the closing costs of a new mortgage.
With a lower interest expense, you will be able to make rational savings. If the timing and circumstances create an opportunity for you to have lower interest rate expense, then you should go ahead with refinancing. If on the other hand refinancing means having a lower interest rate with an extended mortgage term that increases overall expense, it would not advisable to refinance because you may wind up spending too much money on the interest.
You can use two calculations to find out if a long-term loan option will earn you savings. The first calculation should be on the loan term of the old mortgage while the second should be on the new loan-term. Compare the results to see if there is a significant different in the interest rates. It will let you know if refinancing is the solution to your financial goals. All in all, some people may refinance to get affordable monthly payments while others may refinance just to get out of adjustable-rate mortgages and any other kind of compromising situation. Therefore, depending on your objectives, you will able to figure out the right timing for mortgage refinancing.
Bad timing for refinancing
There are a few things that can conspicuously indicate to you that the timing for refinance is definitely wrong. For instance, when you plan to stay in your home temporarily, the best thing to do is sticking to the current mortgage. At this point, the number of months for recouping the closing costs falls in as an essential calculation when weighing your options. Calculation is effectively done by the refinancing calculator.
You can always get it right when t comes to mortgage refinance in Montreal by applying this knowledge to what you already have at hand. Sometimes it may be quite challenging to figure it out. The key to finding the right solution is setting your goals straight. It is the benchmark that will help you make the right choice after finding the perfect timing for mortgage refinancing.