When You Should Reconsider Refinancing Your Mortgage?

Let’s face it. Not everyone is born with a silver spoon and many people need to take up a mortgage in order to purchase their house or apartment. Mortgages can be as long as 30 years or up to age 65 depending on where you live but it is a fact that a huge chunk of one’s salary goes towards mortgage repayments. Whilst having a mortgage is quite common and most of us live with it and dutifully pay our instalments, there are some people who might face certain financial difficulties during the mortgage period in which event, they might want to consider refinancing. Well, even if you are comfortably paying your mortgage, you might want to consider refinancing in the following circumstances.

When the current refinancing package offers a better deal than your current mortgage

Financial institutions are always trying to outdo one another with innovative mortgage products by promising better deals to their customers. At today’s standards, calculation of interests based on daily basis is the norm whereas a couple of years back, monthly basis was the norm. Daily basis calculation is usually more beneficial to the customer as any prepayment may immediately reduce the amount of principal and calculation of interest daily compared to a once a month occurence in the monthly basis calculation.

When the initial lock-down period has expired

You would need to examine your mortgage agreement to see what is the initial lock-down period. This lock-down period is essentially a mechanism whereby the financial institution discourages refinancing by way of imposition of a penalty, usually in the form of fixed sum or percentage payment for the outstanding sum. Unless the cost and benefits of refinancing outweighs the initial lock-down period penalty, it may be more prudent to just wait till the period is over.

When the refinancing package offers a consolidation of all your loans or debts

Most financial advisers agree that the interest charged in mortgages are lower compared to credit card interest charges. Assuming you have paid a portion of your mortgage but you are having difficulties paying off your credit card bills which have accumulated to a substantial sum, you might want to consider refinancing your mortgage for a higher sum so that you can use the additional amount to pay off your credit card bills in full. This is where debt consolidation comes into play.

As in all refinancing situations, ensure that you work out the cost and benefits of refinancing prior to signing on the dotted line. Ask your financial institution how much you will need to spend in legal fees and disbursements for the whole exercise and your projected savings should you refinance. If the savings far outweigh the costs involved, seriously consider refinancing.

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September 8, 2007 | Filed Under Finance 

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