What is Mortgage Refinancing?
Refinancing means replacing your current mortgage with a new one, typically with different terms. This can help you access equity, lower your payments, or achieve other financial goals.
Reasons to Refinance
1. Lower Interest Rate
If rates have dropped since you got your mortgage, refinancing could reduce your monthly payments and total interest paid.
Example: On a $400,000 mortgage, dropping from 5% to 4% saves about $230/month or $27,600 over the remaining term.
2. Access Home Equity
Your home equity is the difference between your home’s value and what you owe. Refinancing lets you access up to 80% of your home’s value for:
- Home renovations
- Debt consolidation
- Investments
- Major purchases
3. Consolidate Debt
High-interest debts like credit cards (often 19-29% interest) can be rolled into your mortgage at much lower rates, potentially saving thousands.
4. Change Your Mortgage Terms
Refinancing allows you to:
- Switch between fixed and variable rates
- Extend or shorten your amortization
- Add or remove someone from the mortgage
Costs to Consider
Refinancing isn’t free. Be prepared for:
Prepayment Penalties
If you break your mortgage mid-term, you’ll pay either:
- Three months’ interest, OR
- Interest Rate Differential (IRD)
- Whichever is greater
Other Costs
- Appraisal fee: $300-500
- Legal fees: $500-1,500
- Discharge fee: $200-400
- Title insurance: $200-400
When Refinancing Makes Sense
✅ Good reasons to refinance:
- Rate savings exceed the costs within 2-3 years
- You need funds for a major expense
- You want to consolidate high-interest debt
- Your financial situation has improved significantly
❌ Think twice if:
- You’re close to the end of your term
- Penalties outweigh the benefits
- You’re extending your amortization significantly
- You’ll use equity for non-essential spending
The Break-Even Point
Calculate how long it takes for your savings to exceed the refinancing costs:
Break-even = Total refinancing costs ÷ Monthly savings
If you plan to stay in your home longer than the break-even period, refinancing likely makes sense.
The Refinancing Process
- Review your current mortgage - Know your remaining term and potential penalties
- Determine your goals - What do you want to achieve?
- Get a professional appraisal - Confirm your home’s current value
- Apply for the new mortgage - Similar process to your original application
- Close the refinance - Pay off old mortgage, start new terms
Alternatives to Full Refinancing
Home Equity Line of Credit (HELOC)
Access equity without replacing your mortgage. Good for ongoing access to funds.
Second Mortgage
Borrow against equity while keeping your existing mortgage. Higher rates but avoids breaking your current mortgage.
Blend and Extend
Some lenders offer to blend your current rate with new rates and extend your term, potentially avoiding penalties.
Is Refinancing Right for You?
Every situation is different. I can help you analyze whether refinancing makes financial sense for your specific circumstances and goals.
This is a placeholder blog post. Contact Bradley for personalized mortgage advice.