Should you re-finance your home mortgage?

Should you refinance your mortgage? This is a question so many people in Hong Kong are asking themselves as interest rates continue to hover at all-time lows. While mortgage rates are at an all-time low that does not certainly mean that everybody with a mortgage should refinance. However, for the majority of homeowners now is the best time ever to take advantage of current interest rates and lock in a lower monthly payment on a mortgage.

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There are various relevant reasons to refinance your existing mortgage. Let’s review the top 5 reasons to refinance your mortgage that make the most financial sense in the current economic climate especially in Hong Kong.

Consider lowering your interest rate and monthly payment

Refinancing your mortgage to include a lower interest rate can significantly lower not only a number of your monthly payments but also decrease the amount of money that you are paying over the life of the loan. If you financed your home years ago, when interest rates were higher, you will most likely be able to obtain a much lower rate by financing today. A difference of even two points can take several hundred dollars off of your monthly mortgage payment amount. You will need to qualify for the new rate by having excellent credit; if your credit is less than required, then the odds are that you won’t be able to qualify to refinance your mortgage.

Change to a fixed rate from an adjustable rate

If your home is currently funded with an adjustable interest rate (ARM), is still in its “locking term,” and is set to age out of the locked term then you might want to reconsider refinancing today to lock in that fixed rate. Your monthly payment with your ARM can vary month to month once the interest rate becomes adjustable. This can put you at high financial risk if you are unable to meet the new payments; you could even lose your home if you are not able to afford the variations in the mortgage payments each month. Your mortgage payments can double or even triple, with an adjustable mortgage rate. Locking into a fixed rate will ensure the stability of your financial situation by allowing you to know exactly how much your monthly payment is going to be.

Change from a fixed rate to an adjustable rate

Alternatively, if you wish to lower your monthly mortgage payment temporarily, you can switch to an adjustable rate for say two years. This is an ideal mortgage idea for a homeowner especially in Hong Kong who has a strong financial and credit situation and will be able to refinance the mortgage back to a fixed rate mortgage at the end of the ARM.

Home equity cash out

If your home has increased significantly in value and you have a fair amount of equity in the home, you may be able to refinance your mortgage to include the market value of your home. This will allow the lender to give you the difference between what was owed on the first mortgage and the market value. You will be able to use your home equity to pay off high-interest loans and credit cards, buy a new car, or even towards home improvement projects.

Consolidation of mortgages

If you have a secondary mortgage, or a home equity loan, with a higher interest rate, you may be able to refinance your primary mortgage to roll in the second mortgage. This would allow you to pay off the higher interest rate mortgage lender in full and significantly lower your monthly repayment amounts.

Whatever your current mortgage situation may be, it is a very wise idea to carefully evaluate how refinancing can better your financial position not only in the immediate future but also further on down the mortgage road.

Nevertheless, finding out your options and giving it a little thought will not harm you, doing anything is an option, too. Doing nothing can be a well-informed decision after you have done some research. That would give you the satisfaction of acknowledging that your financial affairs in order. A lot of individuals do not like to take a venture with their mortgages. This is natural and understandable. After all, every investment has a risk factor in it, naturally. Doing nothing has a cost in the form of lost opportunities, as well.