Should You Resort to Mortgage Refinancing

Refinancing is the act of replacing a debt – like a mortgage – with another debt that bears different terms. By refinancing, you are able to pay off a loan that has less than favorable terms with another one that bears the promise of favourability.

Usually, homeowners resort to refinancing to get a lower interest or to extend the term (or life of the loan). Sometimes, this kind of financial option is availed of to switch from an adjustable rate mortgage (one where the interest rate varies through time) to a fixed-rate mortgage (one whose rate remains steady throughout the term of the loan).

But refinancing – Toronoto or anywhere else – is not this simple. If you look at the advantages presented above, then you’ll surely be encouraged to take your mortgage – Thornhill or elsewhere – to a lender that can give you better terms and conditions. But you need to check if your unique circumstance makes it ideal for you to resort to refinancing.

So when is refinancing ideal then? Let’s name a few situations.

If you’re staying in your house for a long time.

Remember that the savings generated out of refinancing cannot be seen right away. This is because lenders usually charge you a fee for getting out of a loan. In the same way, you may also have to pay something for getting into a new one.

Thus, it makes sense that in order to feel the savings generated out of refinancing, you have to stay in your home for long. If you are planning to move out in a year or two, then might as well forego getting another mortgage.

If your new interest rate is at least half a percentage lower.

Once again, one of the reasons why people get into refinancing is to avail of a lower interest rate. But remember that there are costs to a new mortgage: application, appraisal, insurance, legal fees. Sometimes, lenders would also charge you discount points – these have to be paid right away so you can avail of the lower interest rate.

So in essence, getting a new loan that has an interest rate of at least half a percentage lower than the current one should be your benchmark. This rate should assure you of potential savings – therefore telling you that refinancing was a good idea.

If you can see potential savings from your taxes.

Payments for mortgage interest can be reflected on your tax return. By refinancing, you are actually lessening the amount that can be deducted from your tax.

Make sure that before you sign up for any refinancing, you are aware of its effects on your taxes. Check if you will still be able to generate a considerable amount of savings from your taxes. Remember that you will be charged with some fees as you take on a new mortgage. So in reality, the amount of savings that you believe you’ll obtain out of refinancing may not be that large. For assistance on the tax implications of a mortgage, consult a tax advisor.

If you’ve answered YES to all of the conditions above, then it would do you well if you refinance your mortgage – it is a good idea to resort to refinancing.

Allegro Mortgages Corp. – Best Broker for All Your Financing Requirements (416) 987-0008

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