If you’re a homeowner in need of extra cash, you have more options than the average person who just rents their home. The odds are that if you own a home, you’ve taken out a mortgage on it. If you’ve been diligent, you’ve managed to make your monthly payments and reduce your debt burden. Then you suddenly find you’re in need of more money than you currently have at the moment. Unlike the renter, who must ask friends or family for help, you can approach the financial institution you took out the loan from and ask to refinance your home loan.
Know What Refinancing Is
This does amount to replacing one outstanding debt with another, larger one, but on slightly different terms. You have built up equity in your home over the years, and you do have access to it. Refinancing will allow you to tap into that equity and get the money you need. You can use this money to pay off other debts, pay your child’s university fees, or plan that overseas holiday you’ve long been dreaming of (but put off, perhaps, due to mortgage obligations).
Many Good Reasons to Refinance
There are other good reasons to refinance home loan debt. Perhaps when you first took out the mortgage, you got locked into doable yet unfavourable monthly payments. If you refinance your mortgage loan, you could see a lowering of your rate. Or, if you need to extend the term of your mortgage, refinancing can help. It is important to keep in mind that whatever the reason you’re refinancing, you’re changing loans. This will incur costs that could catch you off guard. There are undeniable short- and long-term benefits to refinancing, but those new and extra costs could outweigh those benefits. You would be wise to be careful.
You may face an exit fee for paying out the existing loan earlier than scheduled. There will also be government fees and charges (aren’t there always?), including a stamp duty. If you’re refinancing with a new lender, you will have to cover application fees, settlements, and property valuations.
Timing Is Everything
When is the right time to refinance? If you’re paying attention to the news, you may notice a gradual fall in mortgage rates. This would be an excellent time to refinance because you could get locked into a new rate quite naturally. This could lower your monthly payments over the course of your mortgage term, or shorten the repayment schedule at the current monthly rate. Another reason to refinance is that your home has seen a marked increase in value. This is the time to access your equity for a little extra money to pay off other debts.
As attractive an option as refinancing seems, it might not be the right thing for you now, either because of timing is wrong or due to the extra costs it will incur. The final decision is up to you, so meet with a mortgage broker to discuss your current loan and future needs, and see if you can get a better deal.