Refinancing a mortgage is a smart move made by people to pay their mortgage at a lower interest rate. But, how successful it may seem, refinancing a mortgage is not for everyone because every home loan is different because of varied interest rates, duration of the loan, and other conditions. Let’s find out if refinancing your mortgage is going to be beneficial for you or not.
How do you know if refinancing is worthwhile?
Here are the elements to be taken into consideration to simulate a refinancing and assess its relevance:
The total interest charge: how much will you earn over the remaining term of the loan?
Costs in the event of internal refinancing: If you renegotiate your rate within your bank, you will have to pay the principal pay administrative fees and a re-employment indemnity, which cannot exceed three months of interest on the remaining capital. Since the costs are lower in the event of internal refinancing, your bank often does not offer you its best rate, at least not immediately, when refinancing.
Costs in the event of external refinancing: If you close your loan at your current bank to go to the competition, you will have to pay the re-employment indemnity to your old bank. In addition to the application fees at the new bank, you will also have to pay a discharge fee (to cancel your old bank’s mortgage) and mortgage fees (to have the new bank take the first mortgage on your good). Despite these costs, the operation can be interesting if the rates offered by the new bank are much more interesting than those of your old bank. However, also pay attention to ancillary products (outstanding balance insurance and home insurance) that you will have to take in the new bank to obtain the “famous” rate. If these products are more expensive than before, this should be factored into your calculations.
Is your bank obliged to grant refinancing?
Your bank is never obligated to refinance you, but since it doesn’t want to lose customers, it will usually agree to do so. The rate offered to you will generally be less attractive than that of the competition, because the costs of an internal refinancing are lower than those of an external refinancing.
The refinancing of a mortgage loan goes with it. If you have a 20-year fixed rate of 3% and hear everywhere that banks are currently offering rates below 1%, you are free to go see your banker (or someone else) to get a better rate. But beware, this has costs. You must, therefore, be sure that the game is worth the candle.
Are you going to lose the tax benefit of your loan?
Do you currently benefit from a tax advantage (housing bonus or housing check) for your mortgage loan? You will be able to continue to benefit from it if you refinance your loan because the signing of the authentic deed of your original mortgage loan will determine the tax benefit you are entitled to.