In difficult economic times, it can be challenging to make the necessary payments on a home mortgage, given that the interest rates may be high and the economy is unstable. In such a situation, there is a chance that you could be thinking of refinancing your residential mortgage Mississauga. You need to know you can gain from refinancing, but there are hidden dangers too, one that can come from being ignorant of how refinancing works. When you do not have the correct information, it can hurt your effort to refinance. It is thus best to read on to find out when you should consider refinancing your mortgage.
Switch From An Adjustable-Rate Mortgage To A Fixed Rate
When your current mortgage is under Adjustable-Rate Mortgage, you can opt to refinance it to change it to a fixed rate. With adjustable interest rates, you’ll pay your mortgage at a fixed rate for the first few years, but afterward, the rate can adjust depending on several factors, such as the rate banks use to lend money to each other and the mortgage market. If you aim to avoid paying too much, you should switch to a fixed rate because an adjustable-rate mortgage will cost you a lot more.
The truth is that an adjustable-rate mortgage transfers the risk of rising interest rates to you, which is not a good financial move on your part. When you refinance your mortgage to switch to a fixed rate, it is worth it as you will be avoiding the risk of your payments rising when the rates adjust.
Reduce Your High-Interest Rate To A Lower Rate
Making smart financial moves is what we all want. When you notice your current mortgage has a higher interest rate than the ones in the current market, you should consider refinancing. If refinancing lowers your interest rate by 1-2%, then you can be sure it is worth it.
However, you need to know that refinance at such a time is best if you plan to stay in your home for a long time. If you are planning to move to a new home soon, you should know you may not recover from a mortgage refinance and the costs associated with it. It is, therefore, better before you rush to refinance our mortgage because of the interest rate, you do consider the duration you are planning to stay in your house.
Shorten The Length Of Your Mortgage Term
Do you want to own your home as soon as possible or let your home own you? If you are currently on a 30-year term, it will be better to consider refinancing as it is a good way of getting to the ideal 15-year fixed-rate mortgage.
But if the 30-year term has a low enough interest rate to compete with the 15-year rates, you might want to remain with it. You need to know there is no need to refinance to a shorter-term if it costs you more. You will be better off making extra payments on the 30-year mortgage monthly to shorten your payment plan.
It is essential to know that if your reasons for refinancing a mortgage are like those described below, then it is not the best idea.
- To Consolidate Debt
It is an excellent thing to consolidate debt but only if it is done the right way. You need to know debt consolidation done in the wrong way can be a dangerous financial move for you. If you transfer unsecured debt into a debt backed by your home as collateral, you could end up losing your home when you fail to make mortgage payments.
If your goal is to complete your mortgage payment soon, you should not consolidate your small debts into your mortgage, such as student loan debt. This is because it will take you much more time to pay off the loans and mortgage too.
- To Buy New Stuff
You might think it is a good idea to refinance your mortgage to buy a new car or remodel your kitchen, but this is not the case. You need to know refinancing your mortgage to purchase unnecessary new stuff will put your home at risk, especially if you lose your job.
From above, you can get to know if you should refinance your mortgage. You need to keep in mind refinancing a mortgage is a smart financial move for you if you need more than mortgage relief can provide. However, not every refinance makes sense; hence you have to evaluate all your options before deciding.
- 3. Seniors
Seniors, age 62+ who have already taken a reverse mortgage in retirement may find it suitable to refinance a reverse mortgage for a lower interest rate or to take advantage of using a new/higher appraised value.