What should contribute to the decision to refinance your mortgage? Here, we review the key factors to consider.
Renovate your budget
In Scotland, home owners paint their doors red to signify that they have paid off the mortgage on their house. While some home owners may benefit from refinancing their mortgage, others may look at just making extra principal payments to help pay off the mortgage faster. Refinancing has many advantages for home owners, but how can making extra principal payments benefit home owners and their budget?
Reaping the benefits!
Just like refinancing, making extra principal payments has ample benefits for home owners. Making extra payments on the mortgage every year allows home owners to save on interest expenses. Paying more money towards the mortgage every month means that more money is going towards the principal balance. This helps mitigate the amount of interest added each month, and over the life of the loan, it will save home owners a lot of money. Not only will paying extra principal payments every month allow home owners to save money on interest, but it will help them build equity faster. This will help reduce the principal loan, which increases the equity of the home. Building up equity means that the value of the investment increases, or increased profits when looking at resale.
Many of the advantages to extra principal payments will come after the property is paid off. Paying off the house allows for more flexibility. Once homeowners pay off their personal house, they can apply for a home equity line of credit (HELOC). More information on the requirements for applying to HELOC can be found on the Government of Canada’s website. If home owners are making extra payments, they can refinance a lower principal balance with a lower interest rate and receive the benefits of more cash flow. More cash flow means that you can treat yourself! Family vacation, new car, home renovations? The options are endless!
Know the downsides and have a plan!
While making extra principal payments sounds appealing, there are a few downsides that may not make it ideal for every home owner. Extra payments can sacrifice liquidity, and home owners should be making sure that they are using liquidity for something that will give them cash flow benefits. If home owners are looking to increase the number of properties they own, the extra liquidity can be used to help purchase another property. Home owners can also write off the interest expenses on monthly payments when doing their taxes; any extra principal payments you can’t write off.
When looking at making extra principal payments, talk to your local mortgage professional. There are many factors that play into the amount of money that you can save. The time at which you start making extra principal payments and the length at which you would be carrying them out will all factor into how much money you will save. Creating a game plan will help you visualize and achieve your goals. Set deadlines and give yourself enough time to achieve all of your goals. When in doubt, talk to your mortgage professional!
Whether you are looking at refinancing or looking to make extra principal payments; it is best to talk to your local mortgage professional. So here at Clinton Wilkins Mortgage Team, we will help you renovate your budget!