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With interest rates dropping, you may hear rumbles about refinancing. And for good reason. If you can secure a lower interest rate on your mortgage, you could potentially save thousands of dollars over the life of your loan.

In what circumstances should you consider a refinance?

• You’re experiencing financial stress and need to reduce expenses
• You’d like to pay your mortgage down more quickly
• It would help if you had improved cash flow to cover other priorities
• You’d like to use some of your equity for home improvements or other expenses

If any of these sound familiar to you, read on. Refinancing could be a solution to your concerns.

 

Can You Get a Lower Interest Rate?

By lowering the amount of interest you owe every month, you can reduce your payments or pay your loan down faster. Of course, this is only possible if you can obtain a lower interest rate than you currently have. This may happen for a couple of reasons.

 

Market Rates Have Dropped

If you got your original loan at a time when market interest rates were higher, you could capitalise on today’s lower rates.

 

Your Credit Has Improved

If your credit score has improved since you first secured your mortgage, you may be eligible for lower rates and superior loan terms.

 

You Shorten Your Loan Term

If your financial situation has improved, you may be able to spend more on your loan repayments each month. If this is the case, you could feasibly shorten the term of your loan, say from 30 years to 25 years. Although your payments may be larger, you would be spending less on interest.

 

 

What’s Involved with a Refinance?

Before you jump into a refinance, crunch the numbers, consulting with your wealth adviser, to determine whether or not the change is worth the closing costs. Although you probably won’t have to pay closing costs with cash, these expenses can set your debt back several thousand dollars.

If you determine that the refinance more than makes up for the closing costs, it’s time to proceed. But what’s involved?

 

Application

The loan application process for a refinance is usually quick and painless. You’ve already done the heavy lifting with your original loan. Your new lender will also need much of the same information, but you probably have it centralised due to your current mortgage.

 

Financial Verification

Your new lender needs to verify your employment information, credit and other key indicators that you can repay the loan in good faith. Gathering and submitting these documents usually takes a couple of days.

 

Appraisal

Next, prepare for an appraisal of your home. The new lender needs an eyes-on inspection of the place, though you don’t need to go to any trouble. The evaluation helps the lender to determine the current market value. You may be surprised at how much your home has appreciated since you first purchased it.

 

Closing

Refinancing generally takes much less time than initial loans. Within a few weeks, you will have a new loan with a lower interest rate, and your payments may be significantly lower! Use this change in your finances to analyse your overall financial health and goals. This may be an excellent time to meet with your financial adviser to set new goals or reevaluate your progress.

As always, keep an eye on your investments, including your primary home, so you don’t miss out on opportunities or overlook potential problems.

To discuss refinancing with an Altus wealth adviser, or to talk about any of your financial plans, get in touch with us. We can offer a sounding board for your future goals and help you put your ideas into action.