Choosing to refinance your mortgage can be a solid financial move, even when you take into consideration the costs of refinancing. Chances are when you purchased your Vancouver home for sale you were in a different financial situation or the market was in a different place. If everything is aligned and your lender offers a lower cost refinancing plan, and you have significant equity already, you may be able to halve your interest or secure a mortgage with no additional insurance payments (if you were considered a high-risk borrower initially). With this in mind, there are a few things to consider before you get started.
Do You Meet the Recommended Qualifications?
While there are many factors to consider when deciding if a refinance is the right move for you and your mortgage, the following factors will allow you to decide if this is something you should look into overall. Each of these should also be compared to the state you were in when you applied for the mortgage in the first place.
- Equity – How much capital do you have in your home? If your mortgage is nearly paid off, you may want to put off the refinance.
- Credit Score – Having a higher credit score than you did when you applied for your mortgage in the first place, or having a score above at least 680, may mean it’s an excellent time to refinance.
- Income – Has your income increased or stayed the same? If not, now may not be a great time, unless your debt-to-income ration has significantly improved.
- You’re Planning to Stay Put – Moving within two years may mean that refinancing isn’t worth the fee.
- There is No “Pre-Payment Penalty” On Your Current Loan – Sometimes paying off your loan early, even through the refinancing process, can lead to a substantial penalty.
Is Refinancing the Best Option to Meet Your Goals?
Refinancing is rarely free. While some lenders do offer to allow you to refinance a loan for free during specific promotional periods, or if you are in an excellent position to negotiate, the fee required to refinance may be as much as 5% of the total loan principal, if not more. Further, while there may be no closing costs or other named costs during a promotional period, there are few genuinely free refinances. These fees, though included somewhere in the fine print, will be most evident in the loan total.
If you would like to avoid these fees, there may be other options when it comes to meeting your goals. If you’re refinancing to access equity, you may want to look at a home equity line of credit (HELOC) or another short-term loan.
A New Mortgage Means New Terms
If you have a fixed-rate mortgage with an interest rate you’re happy with now, you may be surprised to learn that your new interest rate may be considerably higher even if your credit score and income have improved.
Mortgage interest rates have been going up for the last several years. Now, however, they may be evening out or even dropping. Depending on the mortgage program you choose, your rates may follow this increase. However, if you got a mortgage a few decades ago, around 2000, then you should see a substantial decrease in the amount of interest you’ll be paying on a refinance mortgage.
When applying for any type of mortgage, it’s vital to go over what projected amounts you will end up paying. This can help keep you from accidentally signing up for something that will end up costing you much more in the long run than if you hadn’t refinanced.