Three reasons to consider refinancing

By FCT

When you refinance your home, you’re basically replacing your existing mortgage with a new one—sometimes with better terms. In most cases, the best time to refinance is when your term is up so you don’t have to pay a prepayment penalty in addition to other fees, but life doesn’t always work out that way.

Here are three instances when you may want to consider refinancing:

1. Change loan terms

If interest rates drop and your mortgage is fixed at a much higher rate, you could refinance to lower your rate and monthly payments. While refinancing to a lower rate will save you money in the long run, make sure the difference in rate justifies the cost of refinancing.

If interest rates rise and you have a variable rate mortgage, you could refinance to lock in a rate before it gets any higher. Depending on the terms of your mortgage and whether or not you decide to stay with the same lender, you may even be able to do this without refinancing.

You could also refinance to increase or reduce the length of your loan, depending on your financial circumstances.

2. Fund big expenses

Over the years, you build equity in your house; if you’ve paid enough into your house, you can refinance to free up some money for big expenses. For instance, if you need to renovate or pay tuition for your kids or yourself, refinancing could be the answer.

        3. Consolidate debt

If you’re trying to pay off multiple credit cards and other types of debt with high interest rates, it may be a good idea to refinance and consolidate your debt to one manageable payment. A mortgage also carries a much lower interest rate than credit cards and other unsecured debt—potentially saving you thousands of dollars in unnecessary interest fees.

Once you decide to refinance, the most important thing is to be prepared for the additional costs like any prepayment penalties, discharge fees and closing costs for your new mortgage. If you’re doing it to free up money, one way you can save is on the refinance itself. Make sure you work with a mortgage broker or lender that understands your needs and helps find a solution that’s right for you.

This is for general information only. Please speak to your lender, mortgage broker or an FCT representative for more information.

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