Is it wise to remortgage? If you’ve had your mortgage for a few years, have heard about interest rates plummeting and your home’s value is on the rise, you might be asking yourself that very question.
Or perhaps that monthly mortgage payment is getting increasingly difficult to make each month. Adjusting your loan could put you in a better financial position when it comes to your month-to-month budget.
Simply put, remortgaging, or refinancing, your house means taking out a new mortgage with new terms and a new interest rate. Some of the best times to remortgage include:
- When you can get a lower interest rate: A good rule of thumb is if the going interest rate is at least 0.5 percent lower than your current rate, it would be beneficial to refinance. If your interest rate is lower, your monthly payments will be less. Also, you’ll have the benefit of building equity more quickly because more of your payment will be going toward principal and less toward the interest.
- When you can shorten the length of the loan: If you have a 30-year fixed-rate loan and interest rates have dropped considerably, you might be able to afford a 15-year fixed-rate loan. Interest rates on a shorter length loan are automatically lower. Plus, if you’re refinancing at a good time, you’ll have even more of a reduction.
- When you want to switch from an adjustable-rate mortgage to a fixed-rate mortgage: Many people find that after they get an adjustable-rate mortgage, the inconsistent payments each month make planning and budgeting difficult. If you switch to a fixed-rate loan, you’ll know how much your payment will be every month. No guessing and no surprises.
- When you want to use equity in your home for a big-ticket item: If your child is getting ready to go to college or you want to give your kitchen a major facelift, borrowing against the equity in your home is one way to cover the cost. However, you should be cautious about how much debt you’re accruing.
- When you want to consolidate your debt: If you have mounting credit card debt, remortgaging with equity in your house can allow you to pay off your debts and start fresh.
Applying for a remortgage is very similar to the process you went through for your existing mortgage. You’ll want your credit history to be in good shape with bills paid on time and have steady income. You’ll also want to calculate your overall savings. Consider how much longer you’ll be in your house, closing costs, and how far down the road you’ll be at your break-even point.
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