Refinancing your mortgage can help pay off some debts at a lower interest rate or even give you some cash in hand to help you renovate your home. The downside of refinancing means that you are going to be adding to the balance of the mortgage you’re borrowing, which can be daunting – especially with changing interest rates. If you’ve been thinking about refinancing but aren’t sure if it’s the right time here are a few things to consider before you sign the paperwork. 

What are the mortgage rates like?

If the mortgage rates have significantly decreased since the last time you renewed your mortgage, then this could be the right time to look at refinancing. You may be able to secure a lower interest rate, and lock in at that rate which means you can keep your mortgage payments the same amount and pay off your mortgage quicker. You may also be able to decrease your monthly mortgage payment this way, and that’s helpful if your financial situation has changed since you last renewed. 

How much does the interest rate need to fall? The general rule is that it’s best if the current rate is about 1 – 2% below your current rate. 

Your credit score has improved

The better your credit score, the better interest rate you can secure. This means it could save you thousands in interest over the life of your mortgage. 

For example, if your current credit score is 660-679, with a 30-year mortgage on $150,000 then it’s estimated you’d pay about 3.3% on this mortgage. This would work out to be $663 a month, and about $89,000 in interest over 30 years. 

Now, if your credit score is 700-759 then it could drop your monthly payment to as low as $631, and save you at least $11,000 in interest over the life of the mortgage. 

Change the term of your loan

Who doesn’t want to be debt free sooner? If you have the cash flow to be able to pay off your mortgage quicker then this could be a great opportunity to change the term of your loan. 

It’s important to note that doing it for this reason will permanently increase your required monthly loan payment. If you aren’t sure that you will always be able to pay more on your mortgage, then you may want to consider keeping it the same and then making extra payments on your mortgage. Most mortgage companies allow additional payments up to a certain threshold without penalty. 

Changing from variable to fixed

With the changing interest rates, it may make people with a variable rate mortgage a little nervous about what’s coming. For this reason, it might make sense for some homeowners to switch to a variable to a fixed rate mortgage. The fixed rate locks in homeowners at a specific interest rate for a set period of time, say 5 years, so they always know what their payment will be and how much they will owe at the end of the term. 

Refinancing your mortgage can really help homeowners to get ahead and pay down their mortgage quicker. 

Contact us today

Are you wondering if now is the right time for you to refinance your mortgage? Contact us today to speak with one of our brokers!

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