The Mortgage Man
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The Three Primary Benefits of a Mortgage Refinance
You’ve heard that a mortgage refinance can be a beneficial step to take. Maybe you’re considering such a step. But what are the true benefits of a refinance? Let’s go over the three primary ways that a mortgage refinance can improve your financial situation.
1. Decrease your monthly payment. The amount of your monthly payment varies depending on your loan term length, the interest rate of the loan, the total loan amount, and other factors such as private mortgage insurance and expenses that have been rolled into the total loan amount. A refinance allows you to adjust many of these variables. If your interest rate is higher than the market’s current mortgage rates, you can refinance into a lower rate and decrease your monthly payment. This is one of the most common motivating factors behind a refinance.
2. Access home equity as cash. If you’ve built up equity in your home through consistent payments or through increased property values, a refinance allows you to withdraw some or all of this equity in the form of spendable cash. The amount you withdraw will affect the total loan balance remaining, but if you need access to money to pay for medical bills, college tuition, or other expenses, a refinance is a far better option than a standard bank loan or consumer credit.
3. Change the length of your loan term. Your original mortgage length may have been fifteen years, thirty years, or more. Either way, a refinance allows you to alter this length, and this can have a significant impact on your financial situation. Refinancing into a shorter term will increase your monthly payment amount but will save you money in the long run. Refinancing into a longer term, which is much more common, will have the opposite effect.
These are the three primary benefits of a mortgage refinance. Analyze your own financial needs and goals to determine the value that a refinance can offer you.
Thinking About Refinancing? Now May Be The Time.
Interest rates are trending better, and it could be the time for you to take advantage.
Yesterday, mortgage bonds were trading at prices that were tipping towards the resistance level of the 200 day moving average. Then today….wow! The trading day is not over yet, but if bonds close at current levels, they will have decidely crushed through the important 200 day moving average, and this is very positive for the trend on interest rates going forward.
As you are aware (if you read this blog regularly), mortgage rates are determined by the bond market and they fluctuate daily with the market. This is the reason that we have “rate locks” so that you can take advantage of a good day in the market to lock in your mortgage rate before closing. This means that the rat you have been waiting to see before refinancing may be close. If you think it may be time to refinance, give me a call, and I can tell you fairly quickly whether it is in your best interest or not.
You can also check out the latest rates at SteveRussellOnline.com.
Reduce your Mortgage Burden
A mortgage is necessary for almost every person buying a home or other piece of property. If you thought that finding a good mortgage lender and finalizing interest rates and other details to your satisfaction was an ordeal, wait until you experience what comes later – the toughest part of the whole mortgage, the repayment.
Making payments each month, on time every time, sometimes the stress of debt gets to you. Wouldn’t life be so much easier if we were free of debts? Well, there are ways to meet this monster head on and see it off as soon as possible. Read on to see how you can pay off your debt sooner and clear your debt long before you are required to.
Take advantage of the Principal Prepayment Technique (PPT): You don’t have to wait for the entire mortgage period to come to an end for you to be debt free. If your loan does not come with a prepayment penalty, paying an extra amount every month towards your principal will ensure that you repay your debt much earlier than you’re supposed to. Since you pay a higher interest amount the longer you take to pay off your loan, the money you save in terms of interest when you repay early is an added cherry that adds appeal to the cake of being debt free. Follow this link for more on the principal prepayment technique. On a 30 year loan, adding one extra payment per year reduces the term on your loan by about 6.5 years. This means that if you had a $1000 mortgage payment and you added an extra $83 to the principal every month, you will reduce the term of your loan by almost 25%.
Refinance your mortgage at lower rates: If your home has risen in value over the years, use the equity on it to refinance your mortgage at a lower interest rate. A new mortgage with different rates is a godsend for those who are struggling to make each monthly payment
Work on your credit ratings: Your mortgage amount and your interest rates are based on your credit ratings; improving them improves your chances of asking for a reduction in your interest rates when you refinance, leading to an overall reduction in the total amount you have to pay.
Put your cash back credit card to good use: Cash back credit cards are much better than those that earn you points. First, the benefits are easier to calculate in terms of value, and secondly, well, you can use the cash for anything rather than the select gifts that points award you. Use the cash you get back from using your credit cards towards your mortgage payments. But make sure that you don’t go overboard by spending rashly using your credit card and exceeding your credit limit or spending on unnecessary things. Remember, the purpose of the whole exercise is to reduce your debt burden, and you certainly don’t want to be jumping from the frying pan into the fire, or from the horrors of one debt to another.
This article is contributed by Sarah Scrafford, who regularly writes on the topic of luxury real estate in Canada. She invites your questions, comments and freelancing job inquiries at her email address: sarah.scrafford25@gmail.com
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