FRANKLIN NEWSFLASH: When to Refinance your home mortgage

Mortgage refinancing simply means paying off your existing mortgage in order to start a fresh one. Refinancing your home mortgage may be a good idea and a money saver under certain circumstances.

For many families, the home is their most valuable asset.  It is therefore important to have a clear understanding of what mortgage refinancing entails so that your decision to refinance would be one that is well thought-out and to your advantage.

When Refinancing Is Worth Considering

Low interest rates: A dip in interest rates resulting from prevailing market conditions, means lower payments and provides a great incentive to refinance your home mortgage. This is because your monthly payment is reduced and you may also be able to increase your home equity (value difference between the balance you owe on your mortgage and the value of your property) within a shorter period.

Shorter amortization period:

You may also be able to increase your home equity within a shorter period of time, by taking out a 20, 15 or 10 year amortization schedule.

Home improvement:

If you want to update your home with improvements it would make sense to refinance to take advantage of the cash it could provide.

Debt Consolidation

If you have high interest credit cards, with high balances and high monthly payments it would be beneficial to do an analysis to see if it is prudent to refinance.

Consolidate a first and second trust deeds:

Often the second trust deed is an adjustable rate product or it’s tenure of (10) years is up for the interest only payments. It may make sense to combine these two mortgages and have a lower payment for one mortgage.

When You Can Quickly Recover the Cost of Refinancing

Refinancing your home mortgage involves similar procedures as obtaining a mortgage when you first purchased your home.  You will need to go through the same level of paper work.

The savings you hope to get from the process should therefore be good enough to offset the cost of refinancing within a relatively short period otherwise, refinancing may not be a viable option.

A break-even calculator  can help you get an idea of how soon you can recover your refinance cost.

If you are going to moving out of your home in a short period of time then you shouldn’t refinance because you won’t recover the cost.

When You Have a Second Mortgage

You can refinance your mortgage by merging two mortgage loans into one thereby reducing your interest payments on both houses. Rates on second liens tend to be higher, especially HELOC’s.

When Changing Your Mortgage Plan

Interest rates on adjustable rate mortgages (ARM) vary with market conditions and your monthly payments may increase over time. If you started off with an ARM and aren’t comfortable with the possibility ofa rate change you may consider switching to a fixed-rate mortgage provided you plan on staying in your home for a long time.