When do you remortgage?
With a mortgage, you pay off your purchased home little by little by paying a fixed amount each month. Therefore, before you effectively purchase a home, it pays to look for a mortgage that fits your budget.
Of course, it can always happen that you want to adjust your mortgage contract or change lenders. For example, because you want to pay a lower interest rate or because the terms of your current contract no longer meet your expectations.
In such cases, refinancing your mortgage is a good idea. What exactly is a mortgage refinance and what does it involve? Read on quickly for answers to all your questions.
What is a mortgage refinance?
Switching a mortgage involves terminating your current, current interest rate contract and immediately switching to a contract with a lower interest rate. After all, when you take out a mortgage, you always choose a term to fix the interest rate you are using. This often involves a contract term of 10 years or more.
However, there is a chance that mortgage rates for newly completed mortgages will change during this term, making your current mortgage no longer the best solution from a financial standpoint. In that case, switching your current mortgage to a contract with a lower interest rate is bound to be a good idea.
How do you transfer a mortgage?
The first step in transferring your current mortgage is to contact your mortgage broker. He or she can help you calculate the potential profit you will make if you take out another contract. Based on that, you will determine for yourself whether it makes sense to transfer your mortgage.
It is important to ask a number of background questions in this process, including:
- Can you recoup any penalty interest thanks to the lower monthly costs with your new mortgage?
- Do you choose interest rate mediation, where your new interest rate is the average of your current interest rate and the market rate at this time?
- Will you take out your new mortgage with the same lender or switch to another with a lower interest rate?
Based on the answers to these and other questions, it will be a lot easier to determine whether the monthly amount you will save by paying a lower interest rate actually outweighs the costs involved in closing. Either way, it is advisable to seek the help of a specialist in this regard!
The costs when refinancing a mortgage
As mentioned above, a mortgage refinance involves some costs. This makes sense: because you interrupt the predetermined installment term, you pay a penalty. This would not be the case if you were switching your mortgage when that term was already over.
An overview of the costs involved in refinancing a mortgage is also essential if you want to make an informed decision. These costs may include:
- Consulting and brokerage fees
- Appraisal fees
- Mortgage deed fees
- Penalty interest
- National Mortgage Guarantee fees
It is important and useful to know that the cost of refinancing your mortgage is tax deductible. This is true if the new mortgage contract serves to replace a loan you previously took out for the purchase, renovation or maintenance of your own home. You do not have an interest deduction on the portion of the loan that you use to pay for the mortgage refinance costs.
To refinance your mortgage or not?
Refinancing your mortgage is indeed possible and also very interesting if you know that you can save money by taking out a contract with lower interest rates. As mentioned above, first of all, it is important to do or have a thorough analysis of your situation. This way you will avoid or limit financial losses.
Even if your current situation is not optimal, you can always ask your current lender for a new offer first. Who knows, maybe a financially attractive solution will emerge, so you can avoid a large part of the above-mentioned transfer costs.