The ABCs of Getting a Mortgage Loan for First-Timers

Posted on: 7 December 2022

With interest rates on the rise, the idea of refinancing now may seem a little behind the times. But if you have an older mortgage that you never refinanced during the pandemic when rates were much lower, you could find that current rates are still good enough to get you a break. If the past few years have left you financially stretched, refinancing now may be the break you need to keep your home and get onto much more stable financial ground. It could even be what you need to allow yourself to buy a second property.

What You Could Do With the Savings

Refinancing allows you to pay less over time and potentially pay less each month, depending on how your refinanced mortgage and payment schedule will be structured. If you have savings every month, you could potentially use those to pay for a second property that you could use for a rental, for example. (This is assuming you already have the savings for a down payment.) That income could cover the mortgage on the second property as well as part of your payment on your refinanced property. You must be careful, however, and ensure that you can follow this plan without creating extra stress for yourself. The housing market is volatile, and a good real estate agent and mortgage lender can help you begin this plan cautiously.

The Refinance Interest Rate Versus Your Investment Interest Rate

If you're investing your savings well and getting a decent interest rate, putting more money into those investments could be better than using it to pay extra on a mortgage. If you're willing to stretch out your mortgage payments so that you have more money now to invest, you could come out ahead in future years if you're careful.

How Your Budget Is Doing With Inflation

One of the best things about refinancing in addition to the better interest rate is that you have a chance to lower your monthly mortgage payment. When the required monthly payment is lower, that's a lot easier on your budget. If you've found yourself in tougher circumstances, refinancing an older mortgage from the 1990s when rates were higher can help you make those last years of payments much more easily.

You Can Always Pay Early

So, let's say you refinance and find all of a sudden that your budget is actually doing great. You're saving, you just got a raise, and things are going well. Instead of wondering why you refinanced and made your mortgage payment schedule stretch out, pay some of that mortgage early. When you refinance, check that there is no penalty for paying off the mortgage early. (If the lender tells you there is, find another lender who will not apply an early-payment penalty.) When there's no penalty, you can pay that mortgage as early as you like and reduce the amount of interest you'll pay over time.

Keep in mind that by refinancing, you've still given yourself more breathing room in your budget with those lower minimum payments should your personal circumstances look a little rockier in the future. And by paying early now, you also shorten the amount of time you end up paying that refinanced mortgage.

For more information on refinances, contact a professional near you.