What is mortgage refinancing? Mortgage refinancing is where a homebuyer applies for a new mortgage to replace the original mortgage. There are a number of reasons that can make someone consider mortgage refinancing including applying for better mortgage loan terms with lower interest rate and term. Mortgage refinancing however is not recommended for home owners who plan to sell their house after a period of time.
To most homeowners, mortgage refinancing sounds like a good idea but there is a lot in theory that may make one to reconsider the choice. Approach a professional specializing in Montreal mortgages to advise you more on mortgage refinancing and what it entails. You should ask yourself the following questions before you decide to apply for a mortgage refinancing.
Do I have a good credit score?
Your credit score plays a huge role when applying for any loan and that includes a mortgage loan. Just because you qualified for a mortgage loan the first time does not mean that you automatically qualify for a mortgage refinancing. A mortgage lender will look into your financial history to check your credit score to determine whether you qualify for refinancing or not. It is important to ensure that you submit your mortgage paybacks on time to maintain a good credit score. Maintaining a good credit score will not only enable you to apply for a mortgage refinancing but will also help you secure a good mortgage rate.
What are my financial goals?
Before applying for a mortgage refinance, you need to find out how this will affect your financial goals. Some people refinance to lower their monthly paybacks while others refinance to get a shorter loan term. Do not be in haste to finish paying off your mortgage that you neglect your other financial goals. Financial experts advise that you need to pay off other high interest loans first before you consider refinancing. If you don’t have any outstanding debts, ensure that you have set aside at least 6 months of savings. You should only apply for a mortgage refinance if it is extremely necessary that you do so. But if you strongly feel that you need to retire mortgage free, you can approach a mortgage broker to help you acquire a refinancing.
How long do I intend to stay in the house?
Mortgage refinancing does not make much financial sense if you don’t intend staying for long in your house before selling it. If you plan to sell your home, you need to calculate when costs of refinancing get outweighed by savings and how long you will reach the break-even point. For example, if your break-even point will be after 15 months and you only plan to occupy your house for two years then applying a mortgage refinance will not make financial sense. Also, homeowners who are almost done paying off their current mortgage don’t need to get a mortgage refinance due to the extra costs involved.
What are your current loan terms?
Are you on an interest only loan or adjustable rate mortgages loan? If yes, you may want to apply for a mortgage refinance to switch to a fixed-rate loan. This is a wise move only if you don’t intend to sell off your home within a span of one year. However, before refinancing you need to calculate whether the terms of your refinancing loan are better than your current loans. If you find out that it will cost more in the long run to refinance then you are better off sticking to your current ARM.
You need to evaluate all the answers to these questions to help you make a wise choice regarding your house mortgage. If you are still not sure whether you still need to refinance your mortgage or not, consult a mortgage broker for more information.