Is Refinancing the Right Option for You?
There are many reasons why an individual or individuals may choose to refinance their mortgage and the majority involve accessing equity from your home. There are other reasons as well, but generally people are adding to their mortgage when they refinance. Depending on your reason for refinancing, it could be a wise option for you.
How it Works
You have the ability to access up to 80% of the appraised value of your home less any outstanding mortgages. It is important to remember that it is the appraised value of the home and not what the homeowner thinks it is valued at. For example, if your home is appraised at $350,000 you could access 80% of that or $280,000. You have a mortgage balance of $220,000 so you could access $60,000.
Expenses Related to Refinancing
As mentioned above you will have to get an appraisal done on your home to get its true value. There will also be legal fees associated with refinancing your mortgage. Many lenders pick up some or all of these costs to gain your business. If you are refinancing within your current term, you will have a prepayment penalty to break the current mortgage early. If you refinance at the end of your term that penalty will not be relevant.
Reasons to Refinance
There are many reasons individuals may refinance to access equity in their homes. These include:
· Completing a major renovation
· Consolidating high interest debt
· Getting a down payment for an additional property such as a rental or vacation property
· Help pay for you child’s education
There are other reasons people might choose to refinance that don’t involve adding money to their mortgage. One reason would be to extend your amortization or in other words the length of time to pay off your total mortgage in full. This would be beneficial if you need to increase your cash flow.
There are many reasons individuals could choose to refinance. It is important to speak to a licensed mortgage agent to see if it is the right option for you.