Benefits of Refinancing Your Mortgage!
As a homeowner, you're aware of the costs and commitment involved in servicing your mortgage payments. A mortgage is often the most significant expense you'll take on during your lifetime, and it can directly impact other aspects of your finances such as your disposable income, savings, and other debt you can carry comfortably. Therefore, structuring your mortgage in a way that enhances your lifestyle, saves you money, and improves your financial standing is vital.
One tactic you may wish to consider is refinancing your mortgage. It entails breaking your existing mortgage contract and replacing it with a new one that, ideally, has more favourable terms. If implemented at the right time and for the right reasons, refinancing your mortgage can yield tremendous benefits. Let's explore the main ones below.
Lock in a Lower Mortgage Rate
The primary reason homeowners choose to refinance their mortgage is to realize savings on interest costs from locking in a lower rate. The amount you can save may seem trivial at first, but over time it adds up.
Suppose you're currently locked into a 5-year fixed-rate mortgage, and, two years into it, interest rates suddenly plummet. In that case, you're stuck paying an exceedingly high rate for another three years! In this situation, it makes sense to take advantage of the lower rates by refinancing your mortgage.
However, you'll also have to crunch some numbers to determine if breaking your mortgage is financially feasible, especially if there are costs and penalties involved in doing so.
Access the Equity in Your Home
By refinancing your mortgage, you can gain access to the equity in your home and put it to use for any number of activities or expenditures. You can use the funds to purchase a new vehicle, cover an extended vacation, or finance your child's college education.
Remember that refinancing to access your home's equity involves breaking your mortgage early, which means you'll be subject to fees and penalties. Be sure to factor these into your decision before shopping for a new mortgage.
Consolidate Your Debt at a Lower Rate
Debt consolidation involves combining all your existing debt into a single loan (in this case, a mortgage), including credit cards, lines of credit, auto loans, and personal loans. Since your home backs the mortgage, a tangible asset that has the potential to appreciate, lenders are more inclined to offer you a lower rate. When you compare the rates a typical mortgage offers with rates attached to an unsecured loan, the difference is stark. Refinancing to consolidate debt can significantly reduce your interest expense.
Switch to a Better Amortization Period
Your amortization period refers to the length of time needed to pay your mortgage off in full. In Canada, amortization periods typically range from 15 years to 35 years, with 25 years being the most common.
Refinancing your mortgage provides you with the flexibility to tailor your amortization period to your specific needs. Extending your amortization period will work to reduce your mortgage payments, giving you some breathing room. Alternatively, if you're adamant about extinguishing your mortgage quickly, shortening your amortization period will enable you to make larger payments, helping you reach your goal sooner.
Final Thoughts
Refinancing your mortgage can provide you with financial benefits, but it should be done wisely. There are costs involved in breaking your mortgage early, so before pulling the trigger, ensure the deal you're getting will be worth it. At Boychuk Mortgage Group - Mortgage Broker, our team is extremely passionate about helping our clients save money while educating them on everything they need to know about their new mortgage.
Contact us today to learn more about refinancing your mortgage and how we can help you.
To learn more about the services we offer, please click here. If you have questions, we'd be happy to hear from you. Please feel free to call us at (778) 808-9944 or reach out via email at riley@boychukmortgages.ca.