Finance

Home Mortgage Refinancing: Your Options

There are a lot of very good reasons to refinance the mortgage on your home:

  • Accessing your home’s equity
  • To obtain a lower interest rate
  • To consolidate your debts

Home mortgage refinancing has been utilized by homeowners to advance their stage in life, help them pay for home improvement renovations, tackle unexpected and large expenses, and combine existing mortgages for a long time. While one of the first questions to come to mind might be, “Should I refinance my mortgage?” another question should cross your mind as well:

“How could I refinance my mortgage?”

There are three ways in which a person can refinance their home mortgage:

  • Breaking their mortgage contract
  • Obtaining a home equity line of credit (HELOC)
  • “Blending” of the existing mortgage

To learn more about your options, read on. Consider all of this information before deciding on a method of home mortgage refinancing.

Breaking Your Mortgage Contract

This method of home mortgage refinancing is one of the riskiest and is likely to hit you pretty hard in the wallet. While breaking a home mortgage contract grants a homeowner the ability to take on a new mortgage with a new lender, the associated pitfalls are definitely worth a stern consideration. Depending on the terms of the mortgage contract, you will likely be on the hook for at least $6,000. Some home buyers have experienced penalties for breaking their mortgage contracts as high as $150,000.

This could be worthwhile if you manage to find a mortgage rate that could take the sting out of that hefty fee structure. However, most home buyers do not consider it worth the risk in the face of such high costs.

Obtaining a Home Equity Line of Credit

A home equity line of credit (or HELOC) grants a homeowner the ability to access their home’s equity over time and as they need it, rather than via one large lump sum. A HELOC still needs to be repaid, typically over the span of ten years. Refinancing the HELOC as it approaches its tenth year and if it has an existing balance on it can delay an increase in payments after the ten years are up.

Essentially, refinancing starts you with a new HELOC.

“Blending” of an Existing Mortgage

Some mortgage lenders will sometimes offer a “blended rate.” A blended rate is your current mortgage plus any additional money that you have borrowed. Blended rates are usually much higher than a mortgage rate, so it’s worth shopping around if a blended rate is of interest to you.

Refinancing your home mortgage, if you are in the financial position to do so, can help you move on with your life much faster even with the debt of the mortgage on your shoulders. By utilizing the resources available to you as a home buyer, you can refinance your mortgage to alleviate your greatest financial strains or start making some improvements around the house.