One of your biggest debts and payment commitments is likely the mortgage on your home.
When looking at your payments, a common question is how to know when to refinance your mortgage. Maybe you can save money by cutting interest rates with a better payment plan. Or maybe you think interest rates are on the rise and you’d like to take advantage while they’re still low.
Your home can be an investment, but if you owe money on it, it’s good to strive to eliminate that debt. However, it’s important to carefully consider refinancing, so let’s look at the 4 factors to consider when wondering how to know when to refinance your mortgage. Please keep in mind, it’s always beneficial to chat to a mortgage broker before making any decisions around your mortgage.
1. WHAT’S HAPPENING WITH INTEREST RATES?
People often consider taking steps to refinance their mortgage because they think interest rates are about to drop. Or, the rates are less than what they are currently paying and they don’t want to miss out on savings.
When you’re able to secure a lower interest rate it can mean more money dedicated toward the principal and perhaps the possibility of repaying your loan faster.
However, it’s difficult to know exactly what will happen with rates even for the most seasoned financial experts.
Perhaps interest rates are forecast to drop in a year or two, so it might be worth waiting to refinance? Is it really possible for interest rates to go any lower though? Well, it just so happens interest rates have been at a zero rate in countries such as Germany since early 2016.
It’s best to seek financial advice when making such a big decision, or you could pay more in the long run.
2. HOW MUCH MONEY WILL YOU ACTUALLY SAVE?
Taking the steps to refinance your mortgage isn’t as simple as switching to a new interest rate. There could be costs such as an appraisal of the home, fees for changing, and maybe even a credit check.
Refinancing in the middle of a mortgage contract might mean you may have to pay off the existing loan and get an entirely new loan. In that case, there could be fees for paying it off that offset any savings from a lower interest rate.
Then you’ll have to investigate what type of mortgage you’ll qualify for, what the rate will be, and calculate monthly payments based on that.
You’ll also have to compare other factors such as features of the mortgage and any additional fees. Doing what’s called a comparison rate will help you determine which mortgage is best, because a lower interest rate doesn’t always mean lower payments.
After completing all those calculations, you’ll have to compare whether you’re saving money in the long run. And, you can determine whether it’s worth it, particularly if you’re nearing the end of the term of the current loan.
3. HAVE YOU DONE ENOUGH RESEARCH INTO OTHER LENDERS?
While we often find comfort in being loyal to our banking institutions, and like to keep our business in one place, there is some benefit to looking around at other possibilities. A mortgage broker can help you with this exercise.
The mortgage market is competitive, with many lenders looking for your business. That means they are looking to offer the best features, terms, and interest rates for your mortgage.
If nothing else, it’s valuable research to allow you to negotiate with your current lender. If there’s not much in it, you can always approach your current lender and ask for a reduction in the interest rate on your existing loan.
4. ARE YOU AT THE RIGHT STAGE TO REFINANCE?
It’s not always the right time to refinance a mortgage. It can depend upon how close you are to paying off your existing mortgage. Or perhaps you’re getting close to retirement.
If you are finding that mortgage stress is having an impact on you, it’s worth exploring all the options available to you, as there could be possibilities beyond refinancing that could help your financial future.
Or, you could decide to dedicate more money to your mortgage, but find out that investing in your super is a better idea.
In any case, it’s a good idea to seek advice for these major financial decisions.
There are many factors to consider when looking at refinancing your mortgage. Lower interest rates are not the only component of your decision.
Even determining whether to choose a fixed or variable mortgage can be a tricky decision. You may want to use a mortgage broker to help you with your decision.
If you’d like to investigate your mortgage and get in touch with one of our recommended mortgage brokers, we can certainly put you in touch.
If you’re new to Financial Framework and would like to discuss your entire financial picture, including your home mortgage, you can contact the advisers at Financial Framework and book a time to meet.
