Would You Increase Your Monthly Mortgage Payment By $50 To Save Over $800 a month? That's How Refinancing Works.
Refinancing your mortgage can help you save tons of money - and not just immediately but also over the rest of your mortgage term, too. I'm not just saying this, either - it's VERY TRUE.
One of the reasons homeowners do not refinance is they believe it may be too costly, the process too lengthy, or they may have to pay a higher interest rate, which defeats the purpose of renegotiating their mortgage. There are also other reasons homeowners do not refinance, which also make up a part of the myths about refinancing floating around today.
Unfortunately, misinformation can often get in the way of homeowners saving money and getting their financial profile in a better position. The truth is by renegotiating a mortgage contract through refinancing; a person CAN free up a significant amount of cash flow and also pay LESS interest on their outstanding debts. Refinancing, therefore, can be (and often IS) a big win for anyone looking to save money. The process is also not lengthy and can get completed as soon as one to two weeks from the date of application.
Some borrowers have a hard time crunching the numbers and determining how much they can save from refinancing. In this case, it is essential to consider two realities. First, a borrower usually refinances into a lower rate mortgage and consolidates high-interest debt like credit cards or unsecured personal loans. This means that over the next term of their mortgage, they save tens of thousands of dollars in interest payments because they traded higher interest for low interest and eliminated disastrous interest-only payments on other credit.
Paying less interest to the banks also means more principal gets paid against their mortgage loan, which means MORE SAVINGS and hopefully, more money in the bank over time. Most people cringe when they learn how much money they've been blowing on a monthly and yearly basis on credit card balances that don't go away. They are shocked when they learn how credit card companies calculate interest and how the odds are against them when it comes to paying off their balances.
What happens if mortgage rates go higher?
If the proposed mortgage interest rate is higher than the actual rate, then it is essential to look at WHY one is refinancing in the first place. If someone is drowning in monthly debt payments, which consist of interest only, meaning they will NEVER pay their balances off in full, then a mortgage with a higher rate remains a great option.
In the case of interest rates, it is critical to realize that no one has been able to time the market and interest rates with 100 percent accuracy. Waiting for interest rates to decline may be a losing battle because, during the wait, the interest rates may climb even higher. Running the numbers and determining total savings is the gold standard at proving whether refinancing is a viable and worthwhile option or not. Only after running the necessary calculations and examining the savings can a person make sound decisions.
Are banks the only place you can refinance your mortgage?
Major banks are just one type of lender - there are more. Mortgage finance companies accessed through the broker channel and credit unions, for example, can offer much better deals at any given time. Most people are programmed to believe that banks are the best place to get mortgage financing. Depending on the type of borrower, credit, and income, a borrower may be better suited for a different kind of lender, which is why it is worth exploring different options.
A mortgage broker can help you shop around, which increases your chances of finding the absolute best deal on your mortgage.
Refinancing - not the only answer?
Sometimes after running the numbers refinancing is not the best option. The prepayment penalty may be too costly, and the person should stay where they are. At this point, we must ask: Are there other options?
The good news is YES. A borrower in this situation - one where they shouldn't touch their first mortgage, can explore a second mortgage, line of credit or private loan.
Private loans, contrary to popular belief, do not cause financial hardship. They can be a great way to put a "bandaid" on a situation temporarily while some other situation sorts itself out. There are many different reasons a person may require a private loan, and if refinancing is out the question, a borrower should speak to their mortgage broker about getting this type of loan and pricing, and so on.
Do you have mortgage questions? Please feel free to call or write.
Sarah A. Colucci
Mortgage Edge, Broker 10680
Direct: (647). 773-4849
By: Sarah Colucci
411 Queen St.
15 Wertheim Court, Suite 210
Richmond Hill, Ontario
Sarah A. Colucci, Mortgage Agent Lic. M14000929
Mortgage Edge, FSCO Lic. 10680