Mortgage Tips

Buying a home is a big investment for which most people have to take out mortgages. The interest rates offered on these mortgages change from time to time as the inflation and the overall economic situation fluctuates. For this reason, it is a good idea to take stock of the mortgage market situation every year to see if you can save money by refinancing your home loan.

Simply put, home loan refinancing is repaying an existing home loan with another loan, usually of a lower interest rate or a longer maturity period. Such loans are mostly taken to cover previous mortgage loans unless you opt for cash out refinancing loans, which give you money for other purposes over and above your liens. Here are a few reasons why you should consider home loan refinancing:

Lower your monthly loan payments

Whether you have a floating or fixed rate home loan, you can benefit for refinancing if the interest rate offered on the new loan is favorable. Because of lower interest rates, you will save money due to reduction in monthly mortgage payments. If you had taken a mortgage loan with a floating interest rate, it would make sense to lock the lower interest rate on your refinanced loan. In other words, with a low fixed interest rate, you would have to make smaller payments over the term of the loan.

Make only interest payments

You can opt for balloon mortgage refinancing in Canada, in which you will only have to make interest payments instead of ‘principal + interest’ payments. Once you have finished paying the interest, you will need to make a lump sum payment towards the principal amount. You will need to ensure that you have sufficient funds to make this final payment. This type of refinancing will give you a chance to recover from a temporary personal financial downturn if you are facing one currently.

Avail more suitable payment terms

In several cases, people opt for refinancing to extend the loan repayment term and lower their monthly payments, irrespective of whether or not they get a better interest rate. This option can be exercised if you are facing a serious financial crunch and need more time to repay the mortgage.

Get some extra cash

You can also go for cash out refinancing, which offer you surplus money over and above your home loan commitment. This extra cash can be used to pay off consumer debts or for other purposes like refurbishing your home or buying a new car.

If you use extra cash for repaying other debts, then you would be able to consolidate your debts into one lower interest rate debt and repay that with a single payment every month. You would end up saving more by repaying from the surplus, as personal loans and interest on your credit cards would have much higher interest rates. But you should keep in mind that cash out refinancing may not necessarily reduce the monthly payments or the tenure for repayment as compared to your previous mortgage.