Home refinancing is a process whereby homeowners can pay off an existing mortgage, in exchange for a loan/mortgage with more favourable terms. So why would someone consider refinancing their mortgages?

  • To take advantage of lower interest rates
  • To unlock equity from their homes by means of a home equity loan

While these seem like great reasons to rush out and refinance, the truth is often different. Refinancing may be a great idea for your neighbour, but it may not work out for you. Read on to find out why that may be the case.  

WHEN TO REFINANCE

The decision to refinance or not is purely dependent upon one’s individual circumstances.  Here are a few facts to consider, and some tips to keep in mind, when making your personal refinancing decision:

  • Interest rates are low, so it may be a good time to refinance: Wrong! Just because interest rates are low, doesn’t mean that YOU will be the beneficiary of those low rates. Depending on your current situation, your mortgage provider may very well NOT offer you a preferred (lower) rate
  • You have two (or less) years to go before your home if fully paid off – why not refinance now: Bad idea! Unless you are paying a significant amount of interest on your loan, it may be a good idea to stick with your current loan until it’s fully paid off. The costs and inconvenience of refinancing may not be worth it! 
  • Your credit score isn’t all that great, should you refinance: Not a good idea! If you have a perfect credit score, you may be better off to refinance, locking in a lower fixed-interest loan and moving away from a higher variable rate loan. However, refinancing with a bad credit score could be risky!
  • You are offered a great (lower) interest rate. Should you refinance now? That depends! Do the math. Sometimes, there may be significant penalties attached with prematurely paying off your existing loan. If you still save money even after factoring all costs and penalties, then refinancing may be worth it
  • You need some money for home improvements. Is refinancing going to help? It may! If you have good credit, and are confident of paying down your refinanced mortgage in time, then accessing home equity through refinancing may be a good strategy

If you are still unsure whether home refinancing is right for you, you could run the numbers through free refinancing calculators available online first. Make your decision only once you are satisfied that the math adds up.

HELP MAY BE JUST A CLICK AWAY

Once you’ve done the math, and all seems good (at first glance), it may be time to get some assistance with your home refinancing plans. Thankfully there is lots of it available – just a click away:

  • Use reputable Refinance Calculators to confirm whether home refinancing is right for you
  • HARP—the Home Affordable Refinance Program—is a program run by the Federal Housing Finance Agency to assist homeowners. While not every homeowner may be eligible, it may be worth exploring whether you qualify for HARP assistance
  • HAMP – strictly speaking, the Home Affordable Modification Program is not what one may call a conventional home refinancing program. HAMP actually changes the terms of your existing contract. However, the net result is that it can reduce your regular mortgage payments for up to 5 years
  • Private lender refinance options, from institutions like US Bank, LendingTree, Quicken Loans, or other reputable institutions may be something that you should also look at 

Parting Tip: 

Before you lock in your refinancing with one specific lender, ensure that you have conducted sufficient research about their competitors and other refinancing options that may be available to you. You can often use such information to your advantage during negotiations. 

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