That time I refinanced my mortgage

 

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Note: this is not a sponsored post, but if you need a mortgage broker, I recommend Alex McFadyen and his team at the Mortgage Pug

I recently refinanced my mortgage. Refinancing basically means paying-off a mortgage with a new one. There are several reasons why one might want to do so, including myself.

getting a lower interest-rate

Despite being in a rising rate environment, it is still possible to obtain a low rate, primarily on variable-interest mortgages. At the time of writing this post, rates for a 5-year variable mortgage were as low as 2.20%.

Obtaining a lower rate will save you thousands of dollars in the course of your mortgage. Do not let the mortgage penalty deter you. Do the math before deciding.

getting better terms

Mortgages can be complex products. The good news about this is that you can find a mortgage that will fit your personal needs.

My previous mortgage was not doing anything for me in terms of prepayment privileges.  I could only make one extra payment, once a year! Although I am in no hurry to burn my mortgage, I wanted more flexibility in terms of prepayment.

leveraging, a.k.a. borrowing against equity

The PF police will most likely be all over this, but leveraging is not necessarily a bad financial move, if done correctly and with caution. In my own situation, I called this”utilizing my assets to the best of their abilities”.

To borrow against equity, first you need at least 20% of equity in the property. An appraisal will be done to confirm the amount of equity. This is when things can get out of control, as a lot of people tend to borrow the maximum amount they are eligible for. This in turn results in a maxed-out HELOC or unmanageable mortgage payments.

Just like stocks in the stock-market, home-appreciation fluctuates. Sometimes, it will go up; and sometimes it will go down.

To minimize risk, I borrowed less than the amount I qualified for. The amount borrowed is also way less than what properties in my area currently sell for. I did not let the appraisal dazzle me.

I opted-out for a cash-out refinance instead of an HELOC. Why would I want to leverage, you may ask. I decided to obtain an MBA and will be using the money to pay for my tuition fees, as well as a top-up to my existing savings in order to work part-time for the next 2 years.

I will elaborate more on this in a couple of upcoming posts.

FINAL WORD

In order to determine whether refinancing your mortgage is the right option for you, you need to do the math and figure-out why you want to refinance. There are costs associated with doing this. As indicated above, you will need an appraisal and you will have to pay for a penalty. You will also need a lawyer or a notary.

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