Mortgage Refinancing Options: How to Get the Best Rates

Mortgage refinancing occurs when you replace your existing mortgage with a new one. The lender may or may not be the same. Some people will refinance their mortgages to consolidate their debts. Others may do so to access the equity in their home for renovations or may try to get a lower interest rate to save some money. Learning when to refinance a mortgage is key to saving money in the long run.

To refinance your mortgage, you will need to blend and extend your mortgage with your present provider, break your loan contract prematurely, or take out a home equity line of credit (HELOC).

What are the options to refinance your mortgage?

Before you decide to refinance your home loan, it's crucial to understand the different types of refinance options available and carefully consider your financial goals. Opting for a rate-and-term refinance could potentially lower your monthly payments or shorten your loan term, but remember to factor in closing costs and ensure the savings outweigh them.

A rate-and-term refinance of your current mortgage with a new one with better terms and conditions. For instance, the new mortgage may have a shorter term, thus allowing you to pay it off faster, or it may come with a lower interest rate. 

A cash-out refinance is similar to a rate-and-term refinance, only it is coupled with an elevated loan amount that allows for money to be extracted from the property’s equity. The provided money can be used to combine debts, improve one’s home, or pay off student loans.

A cash-in refinance consists of the owner bringing money with them to pay down the mortgage balance to reduce the amount that they owe to their lender. The result is usually a shorter term and a reduced interest rate on their mortgage.

As can be seen, there are many different mortgage refinancing options available. A mortgage broker can go over your financial details and help recommend the best solution for your situation.

What is the best way to refinance a mortgage?

We strongly recommend boosting your credit score, as lenders will carefully assess your credit history when deciding if they are willing to refinance your mortgage.

You should also compare and contrast various mortgage refinancing rates to find the best deal for you and your family. 

Many homeowners have at least 50% equity in their homes. As such, they can tap their home equity to obtain a cash-out refinance to accomplish their fiduciary objectives.

In addition, you need to make sure that refinancing your mortgage is of benefit to you. It is essential to realize that refinancing essentially resets the loan. If you refinance frequently, you will be extending the term repeatedly, which may translate into more money spent to pay it off finally.

It is also imperative that you know how much your home is worth. The pandemic has caused the value of homes to increase exponentially. As a result, you may have accrued more equity in your home in the last few years than you realized.

We would also suggest that you try and negotiate fees and refinancing rates with your lender. You do not have to accept their terms. Shop around to find a bargain that works for you.

How can I borrow money when refinancing my mortgage? 

The purpose of your refinance must be acceptable to your lender. The “right” reason may include debt consolidation, combining mortgages, or needing money to renovate your home. 

Your property must also be eligible. Eligible properties may include investment properties, secondary homes, or owner-occupied homes.

The loan-to-value (LTV) ratio will be evaluated as well. The LTV refers to the principal balance of the loan and the value of the home. For instance, if your property is worth $100,000 and the loan is for $85,000, then your LTV would be 85%. 

Amortization options will also need to be considered. The length will vary from lender to lender, but some may offer up to 30 years.

For many homeowners, the main reason they try to refinance their mortgage is to obtain lower interest rates.

Plan Ahead 

Refinancing involves trying to replace your existing mortgage with a better one to save money. Your needs may change as you get older, and refinancing your mortgage may allow you to obtain more favorable terms better aligned with your financial goals. 

To get the best rates, you need to perform the necessary due diligence. Shop around and negotiate with various lenders. A mortgage broker can help you negotiate properly and handle the paperwork to focus on other, more pressing matters.

As well, they have access to specific lenders and deals thanks to their unique contacts. Boosting your credit score may also help you obtain more favorable terms, as your lender will see you as having minimal risk.

It would be best if you also determined how long you intend to stay in your current home, closing costs, and whether or not private mortgage insurance is right for you and your family.

.

Sources:

Mortgage Refinancing Options | True North Mortgage 

The best way to refinance a mortgage | Follow these six tips (themortgagereports.com)

What Is Refinancing? | How Mortgage Refinancing Works (themortgagereports.com)

Mortgage Refinance in Canada | Reasons, Methods & Costs (ratehub.ca)