Refinancing your mortgage is a significant life decision and often a cost-effective move, but not always. Refinancing a mortgage is not free and because there are costs associated, sometimes obtaining a lower interest rate can become far more expensive than the loan you currently have. That is why timing is far more significant than many realize. How can you determine when the right time to refinance your mortgage is?
Read on to discover what factors to consider before refinancing your mortgage to determine whether the time is right for you.
What To Consider Before Refinancing
The following information will help give you a better idea of how a refinance could benefit you, whether you’re eligible and how to go about refinancing:
1. Current Interest Rate
If you’re able to obtain a lower mortgage rate, refinancing is a viable option for you. However, it’s important to consider the process of recouping from closing costs. For example, if you put down about $2,000 to refinance towards a lower rate mortgage and the payment drops by approximately $150 each month, it will likely take over a year for you to break even.
2. Know Your Credit Score
Now more than ever, lenders are far more stringent with loan approvals. Requirements and standards have been raised, especially in terms of credit. Even with a great credit score behind you, you may not always qualify for low-interest rates. However, if you have been meeting your mortgage payments on time over the past few years, you have a much higher chance of obtaining a lower interest rate.
3. Your Home’s Equity
Lenders will likely want to see your home’s equity to determine whether or not you qualify for a specific loan. More often than not, the more equity your home has, the much easier the refinance process will be. Refinancing a home with little equity is still possible, it just may be more arduous. Our Brampton mortgage broker can help you determine whether you qualify for a loan program and discuss your individual needs to make this process much smoother. Most homeowners will be required to have at least 20% equity to qualify for a new loan, however, some allow for 10% even if it is less favourable.
4. Mortgage Prepayment Penalty
Some banks and mortgage brokers offer mortgage prepayment penalties on some loans. The loans often have lower payment fees or an overall better rate, however, if you pay off your loan early, you may end up owning a steep fee. The penalty is fastened in place for a certain duration of time, however, if you want to refinance your mortgage prior to the penalty expiration, you must pay the penalty first.
Dhugga Mortgages is the Brampton mortgage broker for professional, unbiased mortgage advice. We are accessible every day of the week and work efficiently to find the best financing options for you. We build incredible strategies for our clients to acquire their best mortgage solutions. Get started with us today with a free consultation at https://dhuggamortgages.ca/contact-us/.