Refinance

What Is A Mortgage Refinance?

A mortgage refinance is when you replace your current mortgage with a new one, usually to get better terms. Homeowners often refinance to lower their interest rate, reduce monthly payments, change the length of the loan, or access cash from their home’s equity.

What Is the Refinance Process?

The mortgage refinance process usually takes 3-4 weeks or longer and involves several steps. First, identify your refinancing goals and gather financial documents like pay stubs and bank statements. Consulting a mortgage broker can make things easier, as they help you find options and complete paperwork.

After you apply, the lender will check your credit and appraise your home to determine its value. Once approved, you’ll sign new mortgage documents at closing, paying off your old loan and receiving any extra funds you may need. Throughout the process, your broker will guide you to ensure a smooth experience and help you find the best option for your needs.

Mortgage Renewal vs. Refinance

Mortgage renewal and refinancing are two different ways to manage your home loan. Mortgage renewal happens when your current mortgage term ends, allowing you to sign a new agreement with the same lender, often with a new interest rate. This process is usually straightforward and quick.

On the other hand, refinancing means replacing your existing mortgage with a new one, either from the same lender or a different one. People refinance to get a lower interest rate, change the length of their loan, or access cash from their home’s equity.

Refinancing typically involves more steps, like a credit check and home appraisal. In short, renewal is about continuing your mortgage with the same lender, while refinancing helps adjust the terms or rates to better fit your needs.

What Are the Pros and Cons of Refinancing?

Pros:

Access up to 80% of your home's value for various needs.
Save money by locking in lower interest rates or protecting against future rate increases.
Lower monthly payments by extending your amortization to 30 years.
Consolidate high-interest debts (credit cards, car loans) into one lower-rate mortgage.
Switch to a mortgage with better features, like flexible pre-payment options.
Add someone to the mortgage or remove an individual from the mortgage title.

Cons:

Possible higher interest rates compared to your current mortgage.
You may need to requalify under the federal mortgage stress test, affecting borrowing limits.
Increased mortgage balance or longer amortization could lead to more interest paid over time.
There may be additional fees such as mortgage registration, legal, appraisal, discharge fees, and pre-payment penalties.

The Bottom Line

Refinancing can provide benefits like lower monthly payments or access to cash, but it also has downsides, such as fees and the need to qualify again. It’s important to consider both the advantages and disadvantages and evaluate your long-term financial goals to see if refinancing is the best option for you.

 
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