Renewing or refinancing
The second time may be easier, but no less important.
If your mortgage is coming up for renewal, there are many things to consider to ensure it meets your current needs. Given current low interest rates, you may wish to refinance or "blend and extend" before the term is up, particularly if you're paying a higher rate now. Here are some of the things you need to know.
Review before you renew.
In many ways, renewing is similar to setting up your mortgage the first time. Before your term ends, your lender will contact you to renew. That's usually when most people research rates, terms, mortgage types and lenders. Mark your anniversary date on your calendar.
When renewing, you keep your current mortgage but have the opportunity to adjust the specifics like rate, term length, amortization and payment schedule. If the features of your current mortgage work well for you, you can renew with your existing lender easily by discussing any modifications you need and negotiating the rate.
All mortgages are "fully open" at the end of their term, so if you are considering making a change in your financial institution, this is the time to do it without penalty.
Negotiate a lower rate.
Negotiating a lower rate doesn't have to be painful. If you have a long-term relationship with your lender, you may find that you can negotiate a better rate than offered, particularly if you've done your homework.
Check the rates that are currently being advertised to ensure that what you're being offered is competitive. Consider whether you're willing to move accounts, investments or other business over to a different financial institution to qualify for a reduced mortgage rate. Lenders are far more willing to give you a better rate if you offer to do additional business with them.
Think about a mid-term break.
If you wish to change any terms of an existing mortgage before the renewal term, it is considered a refinance. This means you're paying your mortgage out in full in order to arrange a new mortgage either with the same lender or a new lender. If you want to refinance before your term ends, there will be pre-payment penalties.
Refinancing is a good option if you find your current mortgage features aren't right for you or if you want to try a different lender. With current low interest rates, it's also smart to look into refinancing in order to leave your higher rate behind in exchange for a lower one. You may save thousands by renegotiating or switching before your term is up. It will all depend on the differential between the old and new rate and the amount of the penalty.
Other debts? Bring them together under one roof.
Consolidation is also another reason to refinance. When you have a number of debts with higher interest rates than your mortgage, you can talk to your lender about consolidating that debt with your mortgage to create one monthly payment. The lower interest rate will create a cost saving for you and help reduce your monthly payments.
Many lenders allow you to "blend and extend" your rate. This works by taking your existing mortgage rate and blending and extending it with the current rate available for a new term length at a weighted average. This option will allow you to take advantage of lower interest rates rather than risking what may happen at the point your term renews.
Consult the experts.
Your mortgage is likely the biggest loan you will ever have and has the greatest impact on your financial health and overall lifestyle. Be sure you have a trusted financial advisor to explain all the mortgage options clearly, so you end up with a solution that meets your unique requirements.