Mortgage Refinancing A Bonanza for Banks And Financial Institutions

Many folks have been asking about renegotiating their mortgages. Their financial advisor suggested refinancing their mortgages and extracting equity from their home’s value to save. It’s vital you understand the nuances, and review your goals and plans for the next two to three years before handling finance matters. Today’s decisions might prevent you from doing future goals.

Mortgage Refinancing Might Not Be the Right Solution
Mortgage Refinancing Might Not Be the Right Solution

Though interest rates will fall sooner than later, if you think you can get a lower mortgage interest rate, this isn’t enough to renegotiate your mortgage. Besides, taking equity from your home to spend on consumer items, including vacations, is expensive financing that will cause increased costs and a longer period of debt. It’s a super deal for banks and financial institutions.

Restrict your mortgage to the cost of buying, big upgrades, and renovations to your home. Banks will offer home equity lines of credit (HELOC). Consider the HELOC a mortgage with variable payable options versus a regular mortgage. Make certain you understand the most subtle details of mortgages and HELOCs.

Refinancing your mortgage involves ending your present mortgage and starting a new one. Before you think of refinancing your mortgage, answer this question: Do you think a bank will relieve you of your debt and reduce its income? Certainly not. So, if you end your mortgage early, the bank will recover most of the lost income from the original terms through various means.

Here is what a large Canadian bank’s website tells us about mortgage refinancing:

Make sure you factor in fees before you decide if refinancing is right for you. You need to pay appraisal costs, legal fees and possible prepayment charges. If you switch lenders, you may have to pay a discharge fee. Also, be aware that taking out home equity comes with risks. For example, if you switch from a fixed-rate mortgage to a variable-rate mortgage, you may deal with rising interest rates and higher monthly payments in the future.

Fee only financial advisors sell no products and are not in a conflict of interest, so their advice is likely unbiased. However, other financial advisor, make money from selling products, so their advice might not be in your best interest. If you think your finances need over hauling, understand things won’t change overnight, and you might need to make drastic lifestyle changes. My dad told me taking short cuts usually is the longest way home. Beware of the quick fix.

Finally, I spoke with folks who previously refinanced and took out HELOCs. Here is one couple’s advice:

DON’T, DON’T, DON’T! Using our home equity to keep an unsustainable lifestyle cost us years of future payments and the ability to be spontaneous. Instead of being mortgage free soon, we’ll have a mortgage payment until retirement. This is heartbreaking. Short-term gain has caused long-term pain. It’s crucial to consider a Capital Fund to save for predictable non recurring expenses, such as major car repairs. Change your mindset of instant gratification and work towards saving for those needs and wants.

© 2024 Michel A Bell

SEE Also:

3 Steps too Speed Up Mortgage Repayment

Rising Interest Rates Harmful Only…

Michel A. Bell

Michel A. Bell is a former senior business executive, author of seven books — including his first children's book published in 2022 — speaker, and adjunct professor of business administration at Briercrest College and Seminary. Michel is a Fellow of the Chartered Certified Accountants (UK), holds a Masters of Science in management degree from Massachusetts Institute of Technology and a Doctor of Business Administration honoris causa from Briercrest College and Seminary. He is founder and president of Managing God's Money™ and Stewarding God's Resources.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.