For a long time, news in the real estate market has been about skyrocketing housing prices and the challenges of buying. Now, it’s also time to think about existing homeowners who are wondering whether they should refinance their mortgage this spring.
Right now, homeowners can refinance up to 80% of the current market value of their home. This is a big potential advantage of refinancing, and many people may be in a good place to refinance this year. Are you wondering what the best move is for you? Here are a few other things to consider if you’re thinking about refinancing your mortgage.
Interest rates have been in the news for a while because they reached historic lows last year. This created a good climate for refinancing, with people hoping to lock in those unbelievable rates. However, for the first time since last January, fixed interest rates are on the rise. The most common mortgage in Canada - the five-year fixed term - has seen an increase in interest rates. This news has had many people rushing to refinance their mortgages before rates jump up even higher.
However, higher rates also mean lower interest rate differential (IRD) penalties on existing fixed-rate mortgages. This means the fines for breaking a fixed term right now are not as harsh as they were when rates were at all-time lows. Refinancing breaks the terms of your existing mortgage, and a refinance usually isn’t worth it if these costs are too high. Therefore, rising interest rates might actually benefit some people who are considering refinancing. Depending on their existing terms, homeowners may be able to save money by avoiding those high IRD penalties.
It’s also important to consider if a refinance will lower your existing rates. If you locked into your mortgage term five years ago, for example, you might find you can secure a significantly lower rate today. If refinancing will result in considerable savings, it may be the right move.
Will refinancing shorten the length of your mortgage?
All mortgages come with interest. Naturally, this means you’ll probably pay more interest the longer your mortgage exists. If you’re in a position to refinance your mortgage to secure a shorter loan length, right now could be a great time to do so. The shorter your mortgage length, the less interest you’ll have to pay, and the more money you’ll end up saving.
If a refinance will enable you to access a shorter mortgage term length, those benefits may be a great reason to refinance this year.
Consider your employment
Remember that refinancing also depends on your personal circumstances as much as it depends on the real estate market. One of the most important items to have in place when you’re thinking about refinancing is your employment.
Lenders want to know a borrower has a steady job, and therefore the income, to be a good candidate for a refinance. They will want to see proof of employment from you, and they will evaluate your risk of losing your job, or being unable to make mortgage payments. Basically, a lender needs to know you’re not too risky an investment for them to grant you a refinance.
Ask a professional
Knowing when it’s the right time to refinance your mortgage is tricky, especially in today’s market. If you have any questions about refinancing, you can reach out to Clinton Wilkins Mortgage Team! Call them at (902) 482-2770, or get in touch with them here.