While a hot housing market and a rise in home values may be a boon to those looking to sell, those not looking to sell their homes may also benefit.

An increase in your home’s value may allow you to reach the minimum 20% home equity, thus making you eligible to refinance your home. 

What is Refinancing?

You are eligible to refinance when you have reached a minimum of 20% equity on your property.  Equity is the difference between the amount owed on the home and its current market value. 

Equity = Amount Owed on the Home – Value of the Home. 

Many homebuyers can only put down 5% or 10% on their purchase and may wait years to reach 20% equity.  However, given the steep rise in home values recently, many homeowners are now reaching 20% much faster.

Refinancing is the process in which a new loan is obtained, often with different terms than the original loan.  

Refinancing is not the same as getting a second mortgage.  A second mortgage is in addition to your first mortgage, and does not replace it like refinancing.  

What are the Advantages of Refinancing?

You can use the equity in your home to consolidate your debt.  Moving your debt from unsecured to secured against your home can be beneficial to your credit score.

Refinancing can also reduce your interest rate on other debts, which can reduce your overall monthly payments, potentially saving you hundreds of dollars a year and improving your cash flow.

Tip: Take the monthly savings in payments and apply at least half of it to increasing your mortgage payment.  You will reduce your interest rate on other debts, improve your cash flow AND pay your mortgage off faster.

You can also consider refinancing to pay for large purchases, such as cars, renovations, or university tuition.

What are the Risks?

While refinancing may be an appealing option, it is critical that homeowners pay close attention to the risks involved.

If you choose to refinance, you may be subjected to a penalty fee by the lender.  It is important to calculate whether the benefits of refinancing are worth the costs that may be incurred. 

What’s Best for You?

Every situation is different, and requires careful calculations of the costs and benefits.  A good mortgage broker can clarify what options are available to you, and help you determine if refinancing your home is the right option for you.

Call me today to discuss your refinancing options!