October 15, 2018
By Mary Beth Eastman

Four Ways to Know It’s Time to Move On From Your Current Mortgage

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When you own property, you may have concerns with your mortgage. Perhaps your financial circumstances have changed since you first negotiated the mortgage, or interest rates are more favorable. But before committing to a new mortgage, it’s important to assess your reasons for doing so and think about the financial impact over the long term.

Refinancing your mortgage is an opportunity to take advantage of a lower interest rate. If you are locked in at a high rate and can get 1 or 2 percent lower with a new lending arrangement, you may save money over the long run. Also, you can switch from an adjustable rate to a predictable fixed rate. Or, if you anticipate rates will go down after you’ve renegotiated, you may reason that an adjustable rate is actually better for you.

Lower interest typically means paying less over time. If you can pay off the loan more quickly, you will also save money. Shortening the term not only means your home costs less, but that there’s less time for you to default. The sooner you can own your home outright, usually the better.

You may have the option to get cash-out refinancing. This means you get a loan for more than your mortgage and use the excess for other things. That can include paying off other higher interest debt. While this sounds like a good idea, you can get into trouble if you’re not careful. If you pay off your credit cards but don’t curb your spending habits, you could end up in even worse shape down the road. Don’t make that mistake when refinancing your mortgage.

Getting a new mortgage isn’t as simple as just getting a new agreement in place. There are additional costs to consider. Those include closing costs and prepayment penalties. This may be fine if you plan to stay in your home for the long term. To get an idea of whether the costs are worth it, divide the total amount of penalties by the savings you have per month with the new mortgage. That will give you an idea of your “break even” point on the new mortgage. If you plan to sell before then, you may want to think twice about a new arrangement.

A mortgage is a significant financial commitment. With renegotiation you can make that commitment less expensive and own more of your asset sooner. But before entering into any new agreements, look at all the financial consequences of your decision.

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