There are many reasons as to why you should consider refinancing your mortgage. If the current rates are lower or new mortgages have been introduced from when you obtained your mortgage then it pays to compare the total costs to the total savings of changing your mortgage.
Refinancing your mortgage can allow you to take advantage of any equity in your home to:
- consolidate debts;
- help cover the cost of home renovations;
- pay for a child’s post-secondary education; or
- free up funds for investments.
Advantages to Refinancing Your Mortgage
A homeowner may see a great deal of savings, and have a lower monthly payment, if an interest rate on the new loan is significantly less than the original mortgage.
For example, if your original mortgage payment is approximately $1,169.18 and you have a monthly payment of $650.00 in $20,000 of credit card debt, your monthly payment would consist of $1,819.18.
If you were to borrow $220,000 at 5% interest to pay off both the original mortgage and the credit card debt, your monthly repayment would be $1,286.1. This results in combining two debts and paying less monthly then you did on your original mortgage. If you were to find a lower interest rate, you would see a great deal of savings.
Disadvantages to Refinancing Your Mortgage
Many of the same closing costs associated with the original mortgage may be present. Costs such as title insurance, lawyer fees, appraisal fees and other closing costs may have to be paid again. If your original mortgage was recent, the lending institution may be willing to waive some of these fees. However, in many cases, the interest you save over time will more than make up for the payment of additional closing costs.