Refinancing a mortgage is a form of credit that allows the customer bank to reduce the monthly installment, extend the payment terms and lower interest rates by granting their property as a mortgage guarantee.
There are several reasons why you can choose to do so: to get lower interest rates, shorten the payment term, move from a variable rate to a fixed rate or for the purpose of consolidating debt. In this article we explain you the reasons that may motivate the refinancing of your home loan.
However, these reasons have advantages and disadvantages. When refinancing a mortgage you should, as when choosing a loan, evaluate the different offers on the market and analyze current rates to determine when is the best time to opt for refinancing.
1. Get Lower Interest Rates
One of the most common reasons for refinancing home loans is to lower the interest rate associated with the loan.
If you choose to refinance you will need to carry out a new deed, so you may have to bear this cost if your institution does not. Check with your bank how much you may have to pay for the deed and how much you can lower the interest rate to see if refinancing pays off.
Imagine that you can reduce the interest rate by 1% or 2%. This way you can achieve greater savings as you will see the amount of monthly installment you pay down.
Another way to achieve better conditions is to make a mortgage transfer to another financial institution. This transfer usually represents significant savings depending on the timeframe and amount missing.
Mortgage Transfer Stay tuned: What are the interest rates on home loans?
2. Reduce the installment
If you are having difficulty meeting your monthly expenses, consider refinancing, as one of the advantages it brings you are the ability to reduce your monthly repayment of your loan and thus alleviate your effort rate.
At the same time, by increasing the repayment term of your mortgage, the monthly installment will decrease.
3. Change Rate Mode
Another motivation for refinancing a mortgage can also be changing the type of interest rate applied. After a few years of hiring your loan, market changes may occur that make it more beneficial to move from a variable rate to a fixed rate.
The variable interest rate is indexed to EURIBOR, ie it fluctuates with changes in this index, while the fixed interest rate is contracted between the customer and the financial institution, remaining tight during the term of the contract.
Please note that the provision of a fixed interest rate loan is currently higher than a variable rate loan due to EURIBOR being negative.
It is important that you check the changes that happen in the market in order to find out which type of rate may be most appealing to your credit.
4. Consolidate Debts
Refinancing can also be used for credit consolidation, which consists of a mortgage-backed consolidated loan. In Portugal, one of the financial institutions offering this solution is BNI Europa.
When you refinance mortgage, you give your property as mortgage security, which may be your own permanent housing, a second home, such as a holiday home or other property you have. In certain cases, the bank even allows you to make a second mortgage on the same property.
This way, by using consolidated mortgage credit, you can make it easier to manage your family budget, reducing the value of the mortgage and reducing the cost of credit by reducing the interest rate.
Keep in mind that to opt for a consolidated loan with mortgage must know what the market value of your property and if you want to make a second mortgage, know the total value of its mortgage loans to the bank to evaluate the LTV (Loan-To -Value) and determine if your order is eligible. As a rule, the LTV ratio goes up to 80%.
Is refinancing mortgage loans really worth it?
Refinancing mortgage loans can be a good solution if you can actually lower your monthly repayments, reduce your loan time or lower your interest rate. When used wisely, this can be a good tool to keep your debts under control.
However, before refinancing take into consideration your current financial situation, ask yourself how long you intend to stay in the same house or how much money you will save if you choose this mode and be sure to check out every offer that exists to make sure that make the best decision at the right time.