Mortgages and finances can be deeply confusing, especially if you are relatively new within the housing market. With so many different terms and contracts being thrown around, it is often hard to keep track of what is happening and when. As a result, you may have no idea what it actually means to refinance your mortgage.
The concept is relatively straightforward. Whenever you decide to refinance your mortgage, it simply means that you are swapping your own mortgage for a newer one - usually one that better matches your individual needs and circumstances. This could mean your balance changes accordingly. Whenever you refinance your mortgage, your new bank or lender, will pay off your old mortgage with the new one.
However, whenever you refinance your mortgage, it is important you do so for the right reasons and understand exactly when to refinance. After all, you do not want to put yourself into a difficult financial situation by refinancing at a bad time. With that in mind, here are four reasons you should consider refinancing, according to this contributed post.
Reason 1: Refinance to save money
Whether you are trying to improve your finances, or ensuring that you have a little more money in your account for emergencies, refinancing to a mortgage with a lower interest rate or lower repayments can save you valuable money in the long run. Lowering your monthly repayments may be particularly helpful this year, with many people across the world facing job loss or reduced pay as a result of COVID-19. However, before you agree to refinance, be sure you understand the new contract and all that it entails. You can also talk to your current mortgage lender to see if they can offer you a better deal beforehand.
Reason 2: Refinance after a divorce or relationship breakdown
If you signed a contract with a significant other, friend or family member, then you're both legally obligated to take care of the mortgage. However, if your relationship disintegrates and you no longer plan to live together, you may need to buy them out of the mortgage through refinancing. Though the process can be somewhat difficult or arduous, it is necessary to protect yourself and your finances.
Reason 3: Pay it back quicker
On average, it takes people between 15-30 years to pay off their mortgage. This is a surprisingly large portion of your life. Therefore, it is hardly surprising that you may wish to find a way in which you can repay your mortgage quicker, so you can sit back, relax and enjoy your money more freely without worrying about making repayments every month. Luckily, one way in which you can do this is by refinancing your mortgage, finding a mortgage that will allow you to pay off the money quicker. However, this would likely mean that your monthly payments are significantly higher as a result - so ensure that you are still able to meet them. Ideally, your mortgage payments should be no more than 25% of your monthly take home pay and it's important you stay within these limits.