Mortgage Refinancing
If you've had a mortgage or some other loan for a few years, you've likely reached a point where you're thinking about refinancing. Who wouldn't - as time passes you come to be aware of just how green the grass is on the other side of the fence, and you realise that perhaps your deal isn't the best one out there.
But if you do want to refinance your mortgage, it'll take a lot of careful planning and analysis. You don't want to leap into the refinance market as a neophyte, or you'll find yourself at the mercy of the worst in the financial industry. But go in with precautions, with planning, and with an awareness of what your options are, and you'll likely come out with a decent refinancing deal.
How free are you?
One of the reasons many people avoid refinancing is that they're worried about the penalties on their old mortgages, about the costs that could be imposed. It's true that there are some charges associated with leaving a mortgage deal early, but they aren't insurmountable by any means. You can avoid some of the charges, and others will be justified by the savings that you can make elsewhere on your mortgage.
The charges associated with refinancing your old mortgage will depend on the nature of that mortgage, as different mortgage types are prone to have different levels of flexibility. The typical variable-rate mortgage is the most flexible, and if you have one of these you should constantly be on the look-out for a better deal that you could achieve by refinancing. The worst are the fixed-rate mortgages. Banks know that people try to get out of fixed-rate mortgages whenever national interest rates fall (making old fixed-rate mortgages significantly more expensive than other deals), and so they impose high penalties for leaving or refinancing before the end of the fixed-rate term.
Why refinancing can mean a better deal
How is it possible that a refinance can offer me a better deal than I got when I first arranged my mortgage? Surprising as it may seem, there are a good many reasons why mortgages taken out at the time of purchase of your house don't always offer the best deal.
First, think back to when you were arranging your mortgage. Think of all the stress, anxiety and confusion involved. Psychologists rate moving house as one of the most stressful experiences in life, and the stress is only doubled if you are buying the house at the time. Since you have so many other things to juggle, the mortgage doesn't occupy as much of your mind as perhaps it should. In your head, getting a good deal on the price of your new home is more important than the rate of your mortgage.
There's another factor as well. You often don't have much time to shop around for a mortgage. You might have been one of those people with only a short amount of time to close a deal in order to meet deadlines for buying the house.
So, mentally stressed and pushed for time, you might well have taken up a mortgage deal that wasn't the best you could have found. Now refinancing enables you to revisit that decision, and try to find a better bargain for your mortgage.
And there's another reason why refinance lenders will often give you a better deal, at least in the United States. It all comes down to the law - unlike when you set up a mortgage for the first time, if you are refinancing then you have a government-mandated window to back out of the deal during the following three days. This goes some way to stopping unscrupulous lenders who try to give you the hard-sell, bounce you into a decision, and then show you all the extra charges they glossed over.
Refinancing between different types of mortgage
Refinancing enables you to shift your mortgage from one type of deal to another. You probably remember from the days when you were first looking at mortgages, that there are many different options. A key difference is between 'repayment' mortgages and 'interest only' mortgages. In a repayment deal, your monthly payments contribute to gradually paying off the cost of the home. In an 'interest only' deal, you only pay interest, without reducing the priciple that you owe.
Now, many people choose to refinance their mortgages, moving from a repayment plan to an interest-only plan. This is a much-maligned form of refinancing, and it's true that it can be taken up for bad reasons. But there are many good reasons to go for it as well. Let's first look at the bad reasons for this kind of refianncing, so that you know what to look out for.
The big danger is being 'cash-dazzled'. Because on an interest-only loan you aren't repaying the priciple, your monthly payments are lower. This enables unscrupulous lenders to advertise the lower payments, without making it clear that they are lower because the borrower will still have a large debt after many years of repayments. But as long as you understand that you aren't paying off your mortgae, and are willing to make that sacrifice, an interest-only refinance deal can work for you in the following ways.
First, it can ease the immediate burden of monthly payments. Sure, you're only reducing it by postponing it - but that's OK if cash is tight now but will be easier in the future. That might be the case, for example, if you have children who will be flying the nest soon: right now, the cost of supporting them eats a chunk out of your monthly budge. Once they've moved on to find their own way in the world, that money can go to paying off your mortgage.
Another reason might be that you want to invest the money you save on your monthly payments, in the hope that it will earn you enough to pay off your mortgage at a later date. Suppose, for example, that you refinance to an interest-only mortgage which is $200 per month cheaper than your previous repayment mortgage. You would invest that $200 elsewhere, and after some years of building up that investment, it might be sufficient to help pay off the mortgage. This kind of arrangement isn't for the faint-hearted, to be sure, but it can work in some circumstances.
What we have to offer
We offer you the opportunity to get all of the information that you need. It's very simple to just fill out our form, and we will do the rest. You will receive all of the information on refinancing for your local area. You can search for lenders for free and get the best possible quote. The information you submit is secured, private and confidential and you will never receive spam mail from us.
We will help you get the best rates from up to four lenders. There are no obligations, no credit checks, and no social security number required. It takes just one minute to fill out the secure online form, up to four of the best lenders in your area will contact you and you can then choose the best lender at your convenience without the hassle of having to do all the research for each individual lender. We do that work for you.
