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Mortgage Refinancing Strategies

By Richard Barrington
NFNS Columnist


Typically, declines in mortgage rates are greeted with a flurry of refinancing activity, as mortgage holders seek to take advantage of lower rates. However, taking advantage of a mortgage rate differential is not the only reason to consider refinancing. From restructuring loan terms to putting home equity to use, there are a variety of refinancing strategies you can pursue.

Examples of Refinancing Strategies

The following are some examples of refinancing strategies:
        
  • Lengthen your repayment term. If you are having trouble making your monthly mortgage payments, consider refinancing to a term longer than the remaining term of your mortgage. This should reduce your monthly payment, and while it is likely to mean paying more interest in the long run, it is a much more sensible alternative than defaulting.
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  • Shorten your repayment term. Conversely, if your financial circumstances are better now than when you first took out your mortgage, you might want to consider refinancing to a shorter term. This can reduce your total interest costs over the remainder of the loan, especially since shorter-term rates are generally lower than longer-term ones.
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  • Switch from an adjustable rate to a fixed rate. Adjustable rate mortgage holders tend to kick themselves after a rise in rates. If this has happened to you, it may be too late to lock in a lower fixed rate, but it is never too late to take the uncertainty out of your monthly mortgage payment.
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  • Combine refinancing with borrowing against home equity. If you are refinancing anyway, you may want to refinance for more than your remaining balance, in order to put some of your home equity to work. If you think you might have need for a home equity loan in the near future, doing your refinancing and home equity borrowing in a single transaction will save you a set of closing costs.
Sensible mortgage strategies are a function of your needs and circumstances--with a dose of sound budgeting thrown in.





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