Property refinancing is simply paying off an existing mortgage loan with another loan that has more favorable terms of repayment. Most mortgages last many years and in those years, a lot of things can change – market conditions, the general rate of interest, the economy on the whole, or even the real estate market and prices. If you have a fixed rate mortgage, then you will be paying the same equated amount throughout the tenure of the loan. Property refinancing can be a good option if three things work in your favor- Shortening the term of payment, getting a lower monthly payment and switching between a fixed and flexible mortgage rate. It may not be a wise option to go for a property refinancing option if these do not work for you.
What you stand to gain
Lower interest rate
Reduced interest can do two things for you- help increase the equity on your home, and reduce the amount that will go into the monthly payment. For most, these are reasons enough to go in for a property refinancing option.
Shorter loan term
When interest rates fall, refinancing options can significantly reduce the loan’s duration if you choose to stick to paying the same amount. Sometimes, a rate drop of just 5% can reduce the total term to about half.
There are many costs that you will have to consider when going in for a property refinancing option. Fees and payments are one thing while the vast amount of paperwork that goes with it might just put some people off. Other times, the process of going through with a refinancing may just not make economic sense. Experts say that anything less than a 2% drop in interest rates may not be profitable enough to go for a property refinancing.