Is it time to refinance your mortgage? Refinancing is a common process involved with owning a home, and one that many homeowners will experience at some point. However, there are still some questions out there about where to start, what factors to consider, and whether it’s worth it. Just like everything else in the mortgage industry, it depends on your situation! Here are some of the biggest points to consider if a refinance is on your mind.
Why do people refinance?
Many homeowners choose to refinance their mortgage at some point. There is no designated time to refinance like there is with a renewal, so homeowners may refinance at different stages of their term. The point of refinancing is to change some aspect of your mortgage that no longer meets your needs. Your mortgage requirements might have changed over time, so refinancing can help ensure your product is suited for you. During periods of falling interest rates, many people refinance to secure a lower rate than the one they currently have. Right now, homeowners will most likely not be able to refinance to a lower rate. However, there are other benefits! You may want to expand your options for prepayment privileges, for example. You might also want to shorten or lengthen your amortization schedule, depending on your financial situation. Some people refinance so they can access home equity for renovations. Finally, you may be considering switching between a fixed or variable rate product. Refinancing can provide you with lots of options.
Examine your income and employment
If you think it’s time to refinance, you will need to take a good look at your income and employment history. When you first secured your mortgage, your lender analyzed these factors to determine your creditworthiness. If you choose to refinance, your lender will want to see the updated data. They need reassurance that you are still in a financially stable position and can support a refinance. If you have changed jobs, or your income has fallen since you got your mortgage, this may affect your lender’s approval for a refinance. In many cases, homeowners are still able to complete the refinance, but it’s important to confirm.
Make sure the process is worth it
We discussed the advantages of a refinance above. However, there are a couple of drawbacks that make it essential to ensure this is a worthwhile process. First, refinancing means you have to break your current mortgage term in order to enter a new one. Breaking your term early will result in financial penalties. If you have a variable-rate mortgage, the fee is three months’ interest. Fixed-rate fees are based on the greater of 3 months’ interest or the interest rate differential (IRD). In periods of falling interest rates, the IRD can be a fairly significant number depending on the lender that holds your mortgage. You must make sure the benefits you receive from refinancing are worth the costs of exiting your mortgage term early. Second, this is a process that takes time and effort. While refinancing is fairly common and does not take too long, you are still putting in the time to set it up. If you have any plans to sell your home, a refinance might not be worth this process. You should be able to enjoy the results of your refinance for a few years.
Get in touch with a mortgage broker!
If you think a refinance might be in your future, your first step should be reaching out to a mortgage broker. We work with clients to determine what their specific needs are, and whether a refinance is a good option. If so, we can start working to find the best product for you. It’s important to use a broker so you can be sure a refinance is the right path for you. Plus, brokers will help you secure the option that’s the best fit for your needs, so you know the process is worthwhile.
The housing market and mortgage industry can be confusing, and refinancing can feel intimidating. However, using a mortgage professional takes away a huge amount of stress and uncertainty. When it’s time to refinance, it’s also time to reach out to us.
If you have any questions about your mortgage, get in touch with me!