In simple terms, a mortgage refinance is the replacement of the outstanding loan on your home with a new loan.
There are multiple reasons a home owner may choose to refinance their mortgage, including:
- Obtaining a lower interest rate
- Renegotiating a shorter term
- accessing the equity in your home to pay for financial emergencies, consolidate debts into a single loan, or to cover life issues such as a child’s tuition or a wedding
In many cases, refinancing a mortgage can be a wise decision. Our agents are unbiased professionals who will offer advice that will help you decide if refinancing is the correct solution for your situation and can offer alternatives if it is not.
Considerations for Mortgage Refinances
In general, a person who owns property will have an easier time securing a refinance than a first-time buyer. Refinances are easier to obtain when there is more equity in the home, though it is common to procure a refinance for up to 80% of a home’s value.
As with applying for any other loan, a person’s income and credit score are important, and it just as important to think about the affordability of the new monthly debt payouts that will arise from the new loan.
Alternatives to Refinances
When a mortgage refinance is not the best option for you, we can offer advice on similar alternatives that may meet your financial goals.
Opening a Line of Credit
When a person’s main motivation for a refinance is to borrow money, it may make sense to see if you first qualify for a line of credit (LOC). An LOC is an unsecured loan (i.e. one that does not require collateral in case of default) and will allow you to borrow money and repay it on your own terms.
Taking out a Second Mortgage
A second mortgage is another option available to those in certain situations that are looking to avoid refinancing. Second mortgages allow you access to the equity in your home without having to refinance and take out a home equity line of credit (HELOC), where your home is considered collateral and have typically higher rates. Most second mortgages are open and can resolve many issues in the most efficient way.
Compared to a person’s primary mortgage, a second mortgage will have a higher rate. On the other hand, the rate of a second mortgage will usually be lower than those associated with credit cards or personal loans, so if consolidating debt is a priority, this may be a route worth exploring.
Refinancing your mortgage is a decision that must be thought through carefully. Get in touch with one of our associates to discuss your situation before taking on a refinance. We would be happy to guide and advise you along the way.