Two sides of the coin of refinancing
The majority of people refinance their mortgage because they are being squeezed by the current loan terms. It’s important to note the need to negotiate with your lender. Lenders tend to get upset if you try to change the terms of your loan without consultation, even if your motives are pure. But there are other reasons for looking seriously at a refinancing strategy. When you first took out your mortgage, you had a poor paying job. Secondly, what is affordable now must still be affordable in one or two years. Are you sufficiently certain that your circumstances are going to stay successful? Look around. But that’s all changed. To make the instalments affordable, you went for a long term, say, thirty years. Now you could pay off the loan in half the time. So how do you make this work? First, you have to be able to afford significantly higher monthly repayments. Paying off the loan faster is wise only so long as you achieve it. The other increasingly common reason for renegotiation is to avoid a mortgage adjustment. During the last few years of the housing bubble, many buyers were sold on an adjustable rate mortgage. The idea is simple. Most contracts use the prevailing rate on a particular day + an agreed mark-up. That way, you gamble that the rates are not going to rise significantly over the holiday period. But the plan was sold on the expectation that all house prices would keep on rising. If the new mortgage rate was going to be too high, homeowners could sell to realize their capital gain and buy another home on an adjustable rate mortgage. You have a low starting interest rate but, at the end of the “holiday” period, the rate is reset or adjusted to a higher rate. All these contracts have a fixed period so everyone knows when the higher rate will hit, but not everyone knows what the new rate will be. Except the bubble has burst and house prices are dropping so owners are caught with no capital gain and increasing monthly instalments. Whichever side of the coin you find yourself on, money is available in the lending market to help you get what you want. All you need is access to multiple lenders to get the best terms. That’s what you get when you use sites like this.