With inflation rapidly increasing this year, it is possible that you may at some point look for a way to access some extra cash. If you are a homeowner, one solution that might work for you is something called a mortgage refinance. A mortgage refinance can be an extremely useful financial tool, but to take advantage of it, you have to understand what it is and how it can be used. Here is what you need to know about refinancing your mortgage.
What is a mortgage refinance?
Essentially, when you refinance your mortgage, you are breaking your current mortgage and replacing it with a new one. You may, of course, refinance your mortgage and get a new mortgage for exactly the same amount of money (the amount you owe on your home), but you can also use a mortgage refinance as an opportunity to borrow from your home equity (the value of your home minus the amount that you still owe on your home equity). And most lenders will allow you to borrow up to 80% of your home equity.
When you use a mortgage refinance to borrow from your home equity, your new mortgage will be used to pay off the old one – but any additional money that you borrow will be paid to you in cash. The cash you borrow may then be used for any purpose you choose.
How can a mortgage refinance help me?
There are numerous ways that homeowners can use mortgage refinances to their benefit including:
- To lower their interest payments – if interest rates have gone down since the last time you renewed your mortgage (or if you have improved your credit and can now qualify for a better type of mortgage), you may be able to save a substantial amount of money in interest payments if you refinance.
- To consolidate debt – one of the most popular reasons for getting a mortgage to refinance is to consolidate high-interest consumer debt. If you are struggling with a high debt load and impossible interest rates, then consolidating that debt through a mortgage refinance can not only help you save a lot of money, but it may even help you pay off your debt months – or even years – sooner.
- To finance a large expense – if you need money to finance a large expense such as a home renovation or to start a business, then refinancing your mortgage could be a low-interest option to help you achieve that.
Are there any drawbacks to refinancing my mortgage?
Because refinancing also means breaking your current mortgage, there will be a financial penalty. Often the money that you save in interest will more than makeup for the amount of that penalty – but not always. The closer you already are to your mortgage renewal date, the lower the financial penalty will usually be.
If however, you are still several years away from your mortgage renewal date, another mortgage tool such as a second mortgage may be a better option for you.
To know for sure if you can expect to see savings from a mortgage refinance -and how much those savings will be – you’ll need to speak to a mortgage broker who can run those calculations for you.
Would you like to benefit from the savings and low-interest money that a mortgage refinance can give you? If so, contact me today to learn more and to set up an appointment.