On the news there is a lot of talk today about mortgages coming to term and people facing significant increase in mortgage payments, because of high interest rates. One of the possible solutions to dealer with payment shock is refinance.
What does it mean to refinance your mortgage? It means that you would like to change one of the mortgage conditions, usually it’s either changing your amortization or changing how much money you are taking out (sometimes referred to as “taking out equity”).
Usually, people refinance their mortgage when their term is coming to an end. Some people choose to refinance earlier (or “break” current mortgage), but this can come with financial penalties from the lender, so talk to your mortgage agent before making a decision.
So how can a refinance help you with your payment? Simply put, if you initially got a mortgage with 25-year amortization and paid it for 5 years, you have 20 years of amortization left and those 20 years will be used to calculate your new payment.
But if you refinance and increase the amortization back to 25 years, your payment will now be calculated based on 25 years of mortgage repayment. Which means that monthly payment will be lower than with 20-year amortization. In some cases you can even increase amortization to 30 years, which will lower the payment even more.
Have question about lowering your monthly payment? Book a free consultation with me today!
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