Refinancing a mortgage refers to paying off an existing mortgage and replacing it with a new one. Homeowners choose this strategy for a range of reasons, the most common being:
- lowering one’s monthly payment to improve cash flow or free up money for a rainy day savings fund,
- consolidating high-cost consumer debt, such as credit cards, car loans or other personal loans,
- renovating one’s residence while taking advantage of possible federal home renovation tax credits,
- setting up a home equity line of credit or “HELOC.” This approach allows you to withdraw funds as needed, when needed. A HELOC can be established for a one-time cost and accessed many times without the need to re-qualify, provided payments are kept up-to-date.
Whatever the reason, or if you are just looking to benefit from a lower mortgage rate, it can make sense to refinance your mortgage. One tip to remember is to understand your prepayment features of your current mortgage and whether this can be factored in to decrease any penalty incurred.