Why You Might Refinance After the Holidays
If the holidays left you with a mountain of credit card debt and less money in your bank account than you'd like, refinancing might be worth a look.
It won't solve every problem, and not everyone will qualify — but it could help you start the new year on steadier ground.
Can You Get a Better Rate?
If you can secure a better interest rate now, you'll lower your payment and save money. Your monthly cost drops, and you'll save thousands of dollars over the life of the loan.
If your current mortgage has a prepayment penalty, figure out how long it would take to recoup that cost with your monthly savings. Sometimes it still makes sense to refinance even with the penalty. A qualified mortgage professional can help you run those numbers.
Do You Have Equity You Can Use?
If you have home equity, you might be able to borrow against it and use the funds to pay off your debts. Most homeowners can borrow up to 80% of their home's value — the difference between your mortgage payoff and the new loan amount can go toward paying down high-interest credit cards or other consumer debts.
Do You Need a Month to Gather More Money?
When you refinance your mortgage, there are usually at least 30 days between closing and your first payment due date. That gap can give you some breathing room to save more money and recover from holiday spending before your new payment kicks in.
Can You Afford a Shorter Term?
If you have more room in your budget for a larger mortgage payment, you might consider a shorter-term loan. You'll own your home faster and usually get a lower interest rate. Paying less interest saves you thousands of dollars over the life of the loan, putting more money back in your pocket.
When a Longer Term Makes Sense
Maybe you don't have debts to consolidate, but you feel like you're living paycheque to paycheque. Stretching out how fast you pay down your mortgage to 25 or 30 years will decrease your monthly payment and free up cash flow.
You can use those savings to ease financial stress and build up a savings account — giving yourself a cushion instead of a tighter squeeze every month.
What to Think About Before You Refinance
Before refinancing your mortgage, here are some things to consider:
Is your credit in good shape? You don't need a perfect credit score, but lenders will pay close attention to your payment history. If you've made mortgage payments late recently, they may not lend you more money than you owe.
Do you have a prepayment penalty? Be sure to understand what it'll cost if you break your mortgage early. Figure out whether it still makes sense to refinance once you account for the penalty.
Will you use the money saved appropriately? If you refinance and save money, will you put those funds toward your high-interest credit card debt — or spend it somewhere else? Using the savings the right way is the only way to actually get out of debt and make refinancing work in your favour.
The Bottom Line
It may make sense to refinance after the holidays if you qualify for an affordable rate and you'll use the funds properly.
Don't refinance just to refinance. Have a purpose and a plan, then stick to it. The key is using any savings or cash you pull out to get out of debt and move ahead financially — not just shuffle things around.
If you think refinancing might make sense for you, or if you just want to talk through the numbers, connect with us. We'll help you figure out what works.
