With Christmas just around the corner, making changes to your mortgage is surely not at the top of your wish list this year. However, I always like to hit the ground running when it comes to my New Year’s resolution and that usually requires some pre-planning or at least some thought.
You may find that taking equity out of your home to pay off high-interest debt associated with credit card balances, vehicle loans, or lines of credit can put more money in your bank account each month.
And since interest rates are near a 40-year low (but unfortunately are creeping higher), switching to a lower rate may save you a lot of money – possibly thousands of dollars per year. It may even put you in a better financial position if purchasing a larger home or revenue property is in your plans.
There are penalties for paying your mortgage loan out prior to renewal, but these could be offset by the extra money you could acquire and save through a refinance.
With access to more money, you will be better able to manage your debt. Refinancing your first mortgage and taking some existing equity out could also enable you to make investments, go on vacation, do some renovations or even invest in your children’s education.
Keep in mind, however, that by refinancing you may extend the time it will take to pay off your mortgage. That said, there are many ways to pay down your mortgage sooner to save you thousands of dollars. Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money.
If homeowners fail to take the time to thoroughly research their options and, instead, simply sign renewal offers received from their bank, credit union or other lender, they could end up paying thousands of dollars more per year in interest. Simply by shopping your mortgage with a qualified mortgage professional, you can access the banks as well as other lenders that you may not have considered, but which can often offer interest rate specials or other attractive terms.
In the current credit-crunched lending environment, now more than ever it’s important to take the time to review your current financial position and see if there are better options available to you.
By refinancing now and paying off your debt, you can put yourself and your family in a better financial position. It’s very important to not rack up your credit cards after refinancing, however, so set your goals and budgets, and stick to them
