Mortgage refinancing refers to a system where a company that gave you a mortgage decides to advance you a loan, and then add it to a mortgage you were already paying. This is a facility that many people are usually interested in using. This is because it’s usually very easy to apply for, particularly if you have a very good history of paying your mortgage bills on time. In addition to that, it also turns out that you can access relatively large sums of money this way as well. This is especially so if the initial mortgage amount was also large.
The fact that refinancing gives you access to a large amount of money with relative ease has the potential to lead people to make the wrong decisions. For instance, you may decide to refinance a large sum of money, only to use it for the wrong reasons. When you are doing refinancing, always remember that you will need to pay back the money with interest. Some of the principles you should consider working with when deciding to refinance include:
Understand the consequences of refinancing
How is refinancing going to affect your mortgage, and your financial life in general? This is a question that should always be at the back of your mind when you decide to refinance. Some of the things that normally happen when you decide to refinance include finding that you have to pay slightly higher interest rates on the mortgage, or having to spend a bit more time paying off the loan.
Depending on the company you are getting the mortgage from, you may also find that there are other changes in the terms and conditions that come into effect. This is especially so if you are refinancing by having your current mortgage fully paid up by a specific company, which will then lend you some of the extra money and then expect you to pay the entire sum over an agreed period. The terms of the two companies might be very different, and you need to know how this will affect you by the time you decide to sign the papers.
Make sure it’s worth it
Why are you refinancing? This should be the next issue that should define how you go about the process. Refinancing for frivolous reasons such as to have fun is generally discouraged, since this is money that you will pay an interest on.
One of the commonest reasons why people decide to refinance is to use the extra money to start an income generating activity, such as a business. In such cases, you should first analyze your business plan to find out if getting the money this way is the best plan. Ideally, your business should at some point start generating an income that will be greater than what you have to pay on account of refinancing. This way, the net cash flow for you will be positive, and this will translate to a more secure financial future.
Feel free to discuss the issue
It’s important to discuss your plans to refinance with other people in order to get their input. This doesn’t necessarily mean having to consult a professional; you should just aim to get more general information about the process particularly if you are doing it for the first time. For instance, you could discuss the same with friends and family members who have refinanced in the past, so that you can get an idea of what their experiences have been so far. Some of the information you can get from doing this includes:
How much should you get?
A common scenario that people find themselves in is having a limit that is much higher than what they actually need. When you are refinancing, this is something that you should be very careful about, particularly if you are known to not be very good at handling money.
By the time you decide to refinance, you will have an idea of the amount of money you need to carry out a certain project such as home renovation. As much as possible, you should stick to the budget that you had planned for yourself, even if you are pleasantly surprised to find that you can borrow much more. This way, you will not take no extra responsibility and then later find out that you can’t fulfill it. This often requires a lot of discipline, but is something that you can definitely pull off.
In summary, refinancing your mortgage can be a very exciting process. However, it’s important to pay attention to the details when doing it so that you don’t end up regretting it.