Guide to Mortgage Refinancing Options in Vancouver
If you have been paying your mortgage for a while and still are a few years away from your renewal, mortgage refinancing in Vancouver can make a lot of sense. However, you need to be in a particular set of circumstances to make refinancing work for you. Take a look at this article and determine whether this is the right time for you to make that move.
First, let’s look at the two major kinds of refinancing loans. A “rate and term” refinance is done to save money. You are refinancing your existing mortgage balance at a lower interest rate and at an amortization and loan term that are more affordable for you. A “cash-out” refinance involves taking out a new mortgage for a higher balance. You get a check for the difference between the existing balance and the amount of your new loan. Use this check to settle other debt that you’re paying off at a higher interest rate (such as credit card balances or other unsecured debt) at a lower interest rate.
The first thing to figure out is where your “break-even” point. When you close a refinance, you face some costs that can run in the thousands of dollars. The “break-even” point tells you how long it will take this refinance to compensate you for those costs on the basis of lower interest rates. To calculate this break-even point, divide the closing costs by your monthly savings.
Your monthly savings will come from two different sources. The first is the lower interest rate you’re paying on your mortgage. The second is the lower interest rate you’re paying on that consumer debt, if that’s one of the things you do with the cash-out refinance.
You’ll want to pay attention to the term of the new loan, though. Let’s say you have a 25-year amortization on your mortgage, and after ten years of paying the loan, you decide to refinance. You have 15 years left on your existing term. If you’re offered a new loan with a 20-year term, the payments will be a lot lower (particularly if the interest rate is lower), but you’ll end up paying more over time. Why? Because you just added five years to your loan. That’s 60 more payments (assuming you’re making monthly payments). So make sure that the term on the loan you apply for has the same term as the one you have now, if you want a true “apples to apples” comparison as far as savings go.
If you want to use a cash-out mortgage refinancing in Vancouver to pay off your credit card debt, you can end up saving a lot of money over time, as your interest rate will go down. However, you want to make sure that you can make the payments on that new loan. It’s one thing to miss credit card payments, as you can end up hearing from collectors and seeing your credit score take a dip. If you miss mortgage payments, though, you can end up losing your home in foreclosure. Not only will you have to find a new place to live, but your credit score will be ruined for the better part of a decade. So make sure that the new payment will fit in what you can do.
If you have questions about your own situation, contact one of our refinancing specialists at Amansad Financial today. We have helped many Vancouver clients save money on their mortgage payments and look forward to assisting you as well!