Refinancing your mortgage simply means opting to pay off an existing loan and replacing it with a new loan, often with simpler and more flexible terms and conditions. Refinancing a mortgage can be of great benefit to the mortgagors, especially if they wish to slash their monthly payments, are looking at lower interest rates, or even wishing to pay off loans faster.
So, we put together a list of four ways to explain how refinancing can help you:
Slash your monthly payments: If you refinance your mortgage into a new loan which calls for you to pay a lower rate of interest, you can reduce your monthly payments considerably. You could further reduce your monthly payment burden by getting an extension of time to payback your loan. But extension of loan terms also comes with a disadvantage of having to pay more interest, overall.
Tap into your home equity: If you refinance a mortgage to get a loan amount which is more than what you have to pay to clear off your current loan, you will get back the difference amount as a cheque from the lender. In other words, you will get a cash-out refinance. Cash-out refinance is usually taken along with a reduced rate of interest.
Pay your loans off quickly: You can choose to pay off your loans faster after refinancing say from 40 years previously down to 20 years now. The amount of interest paid also therefore gets lessened. But one disadvantage of doing this is that it increases your monthly payments. But if you have your finances sorted well, this should not be an issue.
Alter the kind of loan you have taken: If you have taken a loan on variable rate which means your payments vary from month to month, and if that is annoying you or has a direct impact on your other expenses, you could opt to refinance to a fixed-rate loan. The fixed-rate loans are great if taken when the rate of interest is low and is expected to go up later.
While the above may be aspects of your loan that can be changed during refinancing, there exist two factors in a loan that remain constant even after the switch to a loan with better terms and conditions is made. These two factors are the debt and the collaterals. The debt stays. It is merely the terms on which you pay it back, that get altered. You may have to pay the same debt back or more, if you’ve asked for more debt while opting for refinancing. The collaterals, if used, also remain after refinancing. This simply means if you’ve taken a loan against your home or other assets, you are still at the risk of losing them if you don’t make your payments. This condition, however, does not stand if you refinance your loan against the collateral into a personal unsecured loan. Such personal unsecured loans are not backed by any collateral.
If you wish to look at refinancing options, we are a team of experienced mortgage brokers who will make the mortgage process a breeze for you.