mortgage refinancing – Is it your best option?
Lets have a look
A common use of mortgage refinancing is to take advantage of the equity in your home, and put some cash on the table. Over time you have built up equity, and as a result, you now have the opportunity to put your equity to work. Whether you want to pay off credit cards, renovate, invest, plan a trip, or send a child to university, the choice is yours.
Here’s How It Works
Essentially, mortgage refinancing is paying off your existing mortgage by replacing it with a new one. The new mortgage can be up to 80% of the value of your home, less any outstanding mortgages. Let’s have a look:
Your home valued at 400,000 could refinance to a value of 320,000
( 400,000 x 80% = 320,000)
Subtract your existing mortgage of 275000 (320,000 – 275,000 = 45,000)
That gives you 45,000 to work with, and a new mortgage of 320,000.
The 45,000 is equity that you have built up over time. You committed to a mortgage, pulled together your initial down payment, made regular mortgage payments, and completed home improvements along the way. You have worked hard for this equity! Therefore, an important question to ask is, how are you going to put this hard earned cash to work?
Mortgage refinancing, is a great tool to help get debt under control, especially high interest credit cards. For best results you need a strategy. First of all, have an honest look at your finances. Next, determine a longer term debt management strategy. Don’t create a monster by getting your credit card balance down to zero, and max them out again. In the end, a realistic plan will ensure you don’t get caught in a trap.
Putting Your Equity To Work
So, you have made the decision, your current home is your forever home. The neighborhood, the schools, travel time to work, everything is perfect. But, the kitchen could use an update, and an entertainment area in the backyard might be nice. Why not take the opportunity to use the equity you’ve generated, add your personal touch, and create your dream home?
University is a big deal! Times have changed and education costs have sky rocketed. The equity is available, why not take the opportunity, to help your children, and feel good about it!
Costs To Consider
There are costs associated with mortgage refinancing.
An early payout penalty will be charged if you end your existing mortgage early. If the timing permits, refinance your mortgage when it comes up for maturity to eliminate the early payout penalties.
Legal fees will be incurred when you replace your current mortgage with a new mortgage. Land title information needs to be revised to reflect the updated lender interest.
An appraiser is required to determine the value of the home. This number is used to calculate the equity you’ve built over time.
Another cost to consider is the additional interest you will pay, when you increase the amount of your mortgage. Borrowing more money means you will pay more interest over time.
Thinking about refinancing? Give us a call, to discuss your options. We’re happy to help.
