Refinance Myths – To be or not to be?

When you refinance a mortgage on your home, you pay off the original mortgage and replace it with a new one. It may have a new interest rate or term, even taking cash out of your home equity. There are some benefits or losses depending on the mortgage scenario and switch opted, however mostly refinancing is a means of getting benefits. It’s important to understand the realities behind a few common mortgages refinance misconceptions. The biggest myths when it comes to refinancing are as follows

Myth – You have to reset your loan amortization period

The most common concern is to pay a lot in penalty upfront, so it is not encouraging to refinance, to secure a lower rate or access to cash. Nowadays, it is a common practice for lenders to write custom loans with the not-so-traditional terms amortization period. Think 12 or 18 years instead of being 10, 15, or 30 years of amortization. While 15-year amortization sound incredibly attractive, their higher monthly payments may not be easy.

Myth – You lose equity on your home

Your home equity is only affected if you add to your loan principal, as you would during an equity take-out refinance. The cash is accessed from the home equity you’ve earned so that equity will get lowered based on the amount you take out. What you need to know is that simply lowering your interest rate, dropping mortgage insurance, or shortening your amortization period will not affect your equity.

On the contrary, if you choose intelligently, that equity may come in handy further down the line when you need access to cash or want to use it toward a new home down payment.

Myth – Short-term debt should not be converted into a long-term debt

Extension of mortgage amortization period is not a good idea seems like true, but it’s not. Credit card rates are almost three times what mortgage rates are, and that interest compounds quickly making it difficult to pay off the debt if you’re only making minimum monthly payments. If you can relate, it’s worth considering a mortgage refinance to consolidate debt.

Paying off your mortgage through a credit card and accumulating higher interest rates, is a bad idea. It is better to extend the amortization period.

Debt consolidation into your mortgage, using equity to pay off those high-interest charges, may be a viable solution if you’ve racked up serious debt. Just be sure you are able to stay out of debt. The last thing you want is to acquire more debt once those credit cards are paid off.

Myth – Its too soon since last refinance

Surprisingly true, that you can refinance as soon as six months after your previous mortgage refinance. If rates are lower or you wish to change the term to a shorter one. It is possible to take advantage of a new loan program sooner than later.

Things to remember before you choose to refinance your mortgage.

• What are my financial goals
• How long do I plan on remaining in the home
• Are the closing costs worth the immediate change
• Are there any pre-payment penalties I’d be facing

5-Reasons to go for Refinance

• A Lower Interest Rate at the current time may save you a lot.
• Goals – Changes in your life or career may have altered your home-ownership plans. Changing the mortgage amortization period can be a savior.
• Refinancing may free you up from monthly mortgage insurance payments and put that extra money in your pocket.
• Refinancing a home can be a great way to access some cash. Invest some of that equity by funding a new business, starting a remodel project, or a college savings plan.
• Changing from fixed to variable rate mortgage or vice versa, can always give you a financial breather.

Choose the right mortgage consultant who has your best interests in mind.

The right advice can help you to understand, if now is the time to refinance, or if you should wait a few more months, or even years.

Find out if enough time has passed, if the costs are right, and if the benefits can make a significant difference simply by calling me. You can expect a simple approach and appropriate guidance, with no pressure. It’s your mortgage, and you deserve a program that fits your current life but also sets you up to achieve your financial goals, without any setbacks.

Want to better understand if now is the time to refinance or calculate your break-even point?

Reach Gurbir Sandhu today!