Changing the conditions of the mortgage to achieve various financial goals
If you already have a mortgage...
...then you may wish to refinance your property to make financial profit. Refinancing means to re-negotiate (i.e. to change the contract of) an existing mortgage in some fashion. This can be done, for example, for the following purposes:
If you decide to refinance DURING THE TERM...
...and your current mortgage is Open, you can refinance (by switching to another lender - a lender which offers you the best conditions) without any penalty.
But if your current mortgage is Closed, then you may have to pay a penalty to the current lender for repaying the mortgage before the end of the term. The penalty to fully prepay the mortgage may outweigh the benefits of refinancing with another lender - the cost of the penalty may be more than the amount saved by refinancing at a lower rate. We can help you to make a decision using financial calculations.
Please refer to Permissions to Pay Off Mortgage Faster for more details.
Is Refinancing a Good Idea?
Article by John Hester in AreaOfEntrepreneurs.com:
Over the past few months, mortgage interest rates have fallen to the lowest level ever. While mortgage rates for all types of mortgages are extremely low, the credit crunch has made getting a mortgage has become far more difficult than it was even a few years ago. Furthermore, getting a mortgage now is quite expensive as it comes with historically high origination fees and mortgage points. Because of this, there are several considerations to take when deciding if mortgage refinancing is a good idea.
The first consideration to take when considering mortgage refinancing is your current credit situation. Mortgage lenders have drastically tightened their lending practices to people with bad credit.
To get the best possible rates, you will now need a credit score of at least 740. If you score is less than 660, you will have a difficult time getting any mortgage at all. If your credit score is poor, spending the money to apply for the mortgage refinancing could be a waste of money. Instead, you would be better off paying down your account balances and checking your balance again in a couple years.
The second consideration to take when considering mortgage refinancing is how much money you have left on your mortgage. Spending the money to lower your interest rate makes the most sense when your mortgage balance is high and your current LTV [Loan-To-Value, i.e. the ratio of the value of the debt to the value of the house - Michael Zuskin] is 80% or more.
If your mortgage balance is far less than 80% LTV [i.e. you owe to the bank less than 80% of your property price on the current market - Michael Zuskin], then spending the money to lower your rate may not make financial sense because only a small amount of your mortgage payment will go towards interest anyways.
The third consideration to take when considering mortgage refinancing is how long you plan on keeping the mortgage.