How You Can Benefit From Mortgage Refinancing

How You Can Benefit From Mortgage Refinancing

When you decide to renegotiate your current mortgage term agreement, you are essentially refinancing your mortgage. You can use your home equity in order to augment your mortgage loan amount. This may allow you to take care of larger expenses without putting too much strain on your finances.

Another reason to refinance your mortgage is to consolidate/combine your debts so that you can pay them off quicker and more easily. Refinancing at the end of your current term may help you avoid prepayment charges as well.

Here, we will focus on how you can benefit from mortgage refinancing.

How Mortgage Refinancing Works

You should begin by performing the necessary due diligence. Shop around to compare and contrast rates in order to get the best deal. Once you have selected the best offer on the market, you need to compare it to your existing loan.

Here, your credit score may have an impact. If you have been able to improve your credit score since you were approved for the first loan, then you may be able to refinance your mortgage under better terms.

You should also keep a close eye on closing costs as well as prepayment penalties. If you decide to refinance a second time or if you pay off your mortgage sooner than expected, then prepayment penalties can cause issues down the line.

As for closing fees, if it costs you $5,000 upfront in order to refinance with a new lender, and your updated monthly payment is just $100 lower than the amount that you are currently paying, then you will need to stay in your current home for over four years just to break even.

Tips to Improve Your Credit Score

If you want to improve your credit score quickly, then you should pay all of your bills on time. It is also important that you work on building your credit file so that it achieves good to great status.

In order to build your credit file, you will need to create accounts that will be reported to all of the major credit bureaus in the country. If your current score is low or if you are just beginning, then we would suggest secured cards or credit-builder loans instead.

If you already have a good credit score and simply want to improve it, then why not sign up for a rewards credit card that does not come with an annual fee? You should also try and extend the length of your credit history.

The longer your credit account is open (and in use), the more beneficial it will be for your credit score. Opening new accounts may actually slightly lower your credit score. You may want to keep an older account open even if you don’t require it.

Try to use it every now and then in order to keep it active. Also, if you do not use the account, ensure that there are no fees attached to it.

You should look for any inaccuracies that may be negatively impacting your credit score. Go over all bills, statements, and accounts carefully, and report any inconsistencies or errors as soon as possible to the necessary authorities in order to rectify the problem.

You should also notify your creditors if you fail to meet their payment deadlines. You may be able to arrange something that is mutually beneficial, and you should at least make the minimum payments even if you are unable to pay the amount that you owe in full.

Benefits of Mortgage Refinancing

You can enjoy better mortgage rates by refinancing your mortgage. You can enjoy lower interest rates as well, and your terms may also be shorter when you decide to refinance your mortgage.

The end result is that you will require less time in order to clear your mortgage. You can also cash out by tapping into the home equity that you’ve built over the years.

Mortgage refinancing has many benefits that you should consider taking advantage of if you want to place less financial strain on your family while also becoming a homeowner faster.

Weighing the Pros and Cons

If your closing cost is more than your monthly payments, then it will take more time to recoup your losses. Mortgage refinancing is not suited for everyone. However, generally speaking, your monthly payments will be much lower, saving you money while improving the equity in your property once you have decided to refinance your mortgage.

If you have any doubts or concerns about refinancing your mortgage, then please speak to a financial advisor. They will go over your unique situation and will help you decide whether or not mortgage refinancing is right for you and your family.

Home ownership is arguably the single biggest investment you will ever make, so it should not be taken lightly.

Sources:

How to Improve Your Credit Score Fast – Experian

Mortgage Refinance – TD Canada Trust

How Does Refinancing a Mortgage Work? – Experian

Improving your credit score – Canada.ca