FUNDAMENTAL VARIATIONS BETWEEN REFINANCE AND RENEWAL

June 8, 2022

When your mortgage term comes to an end, you, the homeowner, have the opportunity to make changes to your financial status and mortgage. Borrowers have the option of renewing or refinancing their current mortgage. Both refinancing and renewing provide homeowners with advantages that align with their property investment, economic, and living situation goals. However, homeowners must understand the fundamental variations between renewals and refinance in order to determine which option is best for them.

MORTGAGE REFINANCING

When you refinance a mortgage, you are renegotiating your present loan agreement. Refinancing is effectively a new loan that substitutes your existing loan. Refinancing is usually done to gain access to your home's equity or to acquire a lower rate. Borrowers can consolidate their debt and pay off high-interest loans by refinancing their mortgage. Secured debt, such as a mortgage, has a substantially lower interest rate than credit cards and other unsecured loans. Homeowners may benefit from consolidating such unsecured and high-interest obligations into a single, more affordable payment. It provides customers with a lower interest rate and can help them save some money for other bills. Homeowners who want to finish renovations or who have a child heading to college could benefit tremendously from refinancing their mortgage.

WHAT DO YOU THINK OF THE TERM?

Furthermore, refinancing is not restricted to the conclusion of your mortgage term; it is possible at any moment! Borrowers can refinance their mortgage before the end of its term, however prepayment penalties may apply. Prepayment expenses may be little depending on the savings made by a refinance with a reduced interest rate. Borrowers who wait until the end of their current mortgage term may be able to avoid paying prepayment penalties.

GETTING A MORTGAGE RENEWED

Renewing your mortgage is not the same as refinancing it. When a borrower's existing mortgage term, whether it's 3 or 5 years, comes to an end but they've not completely paid off their loan, they might choose to renew it. Homeowners will be able to renew their mortgage several times throughout the course of their loan's term. It corresponds to the period of your loan. You will receive a letter from their lender near the conclusion of your existing term with an offer for a new mortgage rate and term. When they receive a letter from their lender requesting renewal, they should think about a few things. The period of your loan, the principle and interest amounts, and the frequency of your payments should all be taken into account. This will help them decide if they should just sign the renewal sheet or not. Taking a look at their overall financial situation

Do I Have Any Choices?

Renewal may appear to be a better alternative due to a growing family or a change in household finances. At the conclusion of your term, you can switch from a variable to a fixed rate, or adjust the amount and regularity with which you pay your principle and interest each month. Speaking with a mortgage professional at the conclusion of the loan term can assist borrowers in determining the most cost-effective approach to save funds and pay off the loan faster.

Team MortgageBiz
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