What exactly does refinancing mean? I’m sure you’ve heard of how refinancing went to an all-time high around 2003; that’s because most people took advantage of the low interest rates, and so they went ahead and refinanced their mortgages.

However, though it is true that refinancing can help you reduce the costs when it comes to borrowing money so you can own a home, it’s not always the best choice for every family out there. So before thinking of getting in on this benefit, take a step back and understand the basics first. There’s nothing like an informed decision to make sure that what you’re doing will help you instead of break you.

What is refinancing

Refinancing essentially means replacing the terms of an old debt obligation with a new obligation having different terms. Perhaps a different interest rate or an extended repayment time or going from a mortgage with a fixed rate to an adjustable rate. Obtaining money from the equity in your property, which for some people means a second mortgage, is also another example.

The Advantages

With refinancing, you can alter the monthly payments that you need to make, thereby possibly reducing your overall borrowing costs. You’ll be able to find a better and more flexible way of paying off a debt, instead of running the risk of defaulting and losing the property you’ve set up as collateral.

Sometimes, we tend to focus so much on making sure all debts are paid that we cut costs with everything else in our lives, perhaps living very frugally and living uncomfortably. With this, you can adjust the terms so you can make sure that you are more than able to pay off a debt and make sure that you’ll soon be living debt-free, a state I’m sure we’d all love to be living in, while still being able to live comfortably.

And if you are able to get a lower interest rate, then you’re even saving money.

A good way to find out if it’s an advantage for you to refinance to calculate the savings that you’ll end up with. If it’s more than what you expected with your previous debt terms, then this is definitely something for you.

The Disadvantages

Sometimes, however, the disadvantages weight out the advantages of having to refinance, say your mortgage, that perhaps it might be best to not take the risk at all. This holds true especially if the value of your home has been decreasing, and yet the amount that you owe and must continue to pay doesn’t decrease. You won’t be able to obtain a lot of money from the equity in your home, and you’ll be saddled with another debt to pay. If you don’t think that this is something you are able to do, then think twice before doing so.

A lot of the fixed-term debts also has penalty clauses against early payment of a loan (whether the entire amount or just a portion of it). The process to refinance also comes with a lot of fees; sometimes, even the fees are more than the savings that you’ll be getting from the process. And what we’re looking for is a way to make more money for our family, not losing money.

When it comes to taking out a loan, there are always advantages and disadvantages. But there are always ways to make sure that we can pay off these debts, whether we stay with the original loan terms or not. Either way, there’s always that possibility of being debt free. Now, isn’t that something you want to do?

Allegro Mortgages Corp. – Best Broker for All Your Financing Requirements
(416) 987-0008

Author Bio: Refinancing your home is just one way of being one step closer to your dream home. If you’re looking for the best mortgage rate, Toronto. And it’s not the only place with the good mortgage rate; Markham in Ontario also offers you ways to have that home for you and for your family. Visit AMortages.ca today.

Category: Finances
Keywords: refinancing