Is refinancing right for you?

If you've had a mortgage for some time but would like to adjust the terms of your home loan to get a more favorable ones, you can refinance.

This process involves replacing your current mortgage with a new one. Essentially, you apply for a new loan, which is then used to pay off your old one. As a result, you get a new repayment term and rate. People refinance for various reasons, though most boil down to a desire to have more affordable mortgage payments each month. Sometimes they want to switch from a variable interest rate to a fixed one, or vice versa. If, for instance, you could get lower interest with an adjustable rate refinance and pay off the remaining balance before the adjustment, you can noticeably reduce your expense each month.

Other reasons to refinance include shortening a term and consolidating debt. The latter is beneficial if you have a home equity loan in addition to your mortgage. Through refinancing, you can have one monthly payment, interest rate and term.

Are you ready to refinance?
Before talking with one of our bankers about refinancing your home loan, you have to determine if this is the best route. Here are some questions to ask yourself:

  • How long have you had your mortgage? During the earlier part of your repayment term, more of your monthly payments are going to interest rather than the principle, which means you don't build equity as quickly. However, this changes in the tail end of your term. By refinancing near the end, you'll restart the process, and your equity growth will once again be slow.
  • How much longer do you plan to stay in the home? Like applying for mortgages, refinancing has costs that you pay. If you plan to move within a short time after restructuring your loan details, the monthly savings may not be enough to make paying those costs worthwhile.
  • Does your loan have a prepayment penalty? Some home loans have a provision that says you can't pay off your balance early without paying a fee. This includes prepayment through refinancing. If your mortgage has these terms, take some time to determine whether the savings you expect are enough to offset the penalty.

For more information about smart ways to manage your finances, contact Landmark Bank.

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