Saturday, October 23, 2010

Mortgage Refinancing – How to get it right.

Most individuals after the initial euphoria of having a mortgage for their homes, awake to the harsh realities on ground that the loan rather than being a solution is indeed a problem. The individual is now saddled with the responsibility of knowing that whether on a long or short term analysis of the facility so obtained, the end results would be far from being considered favourable. Also, as a strategic reconsideration after the signing of the agreement with the creditors, the individual might desire to include certain assets originally left out and which may now be able to cushion the effects of the facility conditions. The reasons why all this happens abound; however, the only viable “out-let” to this situation is commonly referred to as “Mortgage Refinancing“.

Mortgage refinancing simply put, provides the individual with the opportunity of replacing one’s current mortgage with a new loan frame-work having a more friendly interest regime and an easier repayment management option. The individual by this facility will have enough funds to tidy-up the current mortgage obligations and then use the balance funds to attend other pressing wants thereby placing the individual at an advantage.
Some reasons why most individuals opt for mortgage refinancing are out-lined as follows:

1.     To reduce or alter the anticipated risk profile associated with the current package.
2.     To obtain a lowered monthly repayment amount.
3.     To allow a long term arrangement that will result in consolidating all debts into a single loan.
4.     To liquidate more cash to service other financial responsibilities.
5.     To take advantage of lowered interest rates being offered on a long term basis.

At this point also, it is note- worthy for the individual considering mortgage refinancing to understand that in addition to the advantages outlined above, mortgage refinancing should only be embarked upon for the right reasons and at the right time. This simply means that the individual in other to get the best results from the option of refinancing must know at every point in time the value of one’s property. The value of the property should be appreciating for this will give the individual the requisite favourable bargaining advantage. More so, the individual must investigate the interest rate being offered in the new deal. The new rate be offered should be between 2% to 5% lower than the current interest rate. Also, as regards the timing, if the current mortgage package has few more years to terminate (i.e. having between 2 to 5 years) the individual can opt to see the facility through and thereby avoid sinking further into debt since one can be debt-free in a short future. Furthermore, the individual should carefully read through the current mortgage agreement to investigate if there are any penalties attached to the condition of “terminating” the agreement before the due date.

Mortgage financing is indeed a strategy not for everybody thus, before you make any concrete commitment in this regard, be sure to ascertain that the new deal will actually be beneficial.

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