How To Refinance Your Mortgage
February 3, 2023 | Posted by: Keith Leighton
How To Refinance Your Mortgage
There are many reasons for refinancing your current mortgage. Switching from an adjustable rate to a fixed rate or taking out a longer-term loan are two common ones. Tapping the equity in your home for some extra funds is another. And, let’s not forget, to obtain a better interest rate.
The process to refinance is similar to applying for your original mortgage. Lowering your borrowing costs and/or using home equity are the benefits of mortgage refinancing
What is a mortgage refinance?
Refinancing a mortgage means paying off your current mortgage by replacing it with another mortgage.
The benefits of refinancing
- Reduce your payment – If interest rates drop significantly, refinancing could lower your payments or help you pay down your mortgage faster.
- - Use home equity – If you’ve paid down part of your mortgage already, you can use that home equity to:
- - Pay for home upgrades
- - Buy more property
- - Contribute to other financial goals
- - Help lower the cost of borrowing and pay off higher interest rate debt (e.g., credit cards)
- - Buy more property
- - Pay for home upgrades
How does a refinance work?
Mortgage refinancing is breaking your original mortgage contract and replacing it with another. However, there is usually a prepayment penalty and you need to assess it's cost before proceeding.
Current regulations allow homeowners to borrow up to 95% of the appraised value of their home with default insurance, or up to 80% without default insurance.
Let’s say your home is worth $450,000, and you’ve been paying down your mortgage for some time, so you only have a balance of $100,000 left.
In this example, 80% of the value of your home would be $360,000 and because you still have $100,000 left to pay, you can access about $260,000 in equity.
What’s next?
Now that you understand more about mortgage refinancing, you may want to contact your DLC Ideal Mortgage expert to:
- - Determine the best way to use your home equity to meet your financial goals
- - Discuss whether mortgage refinancing is the best option for your situation
