Jamaicans
now have the chance to refinance their mortgage and other loans at a lower
interest rate. But it's not always the right decision.
Refinancing
options must be carefully considered and the benefits must be material. Refinancing
doesn't pay off the debt; it just restructures it, often at a lower interest
rate and a different loan terms.
Factors to consider include:
Time Left
If
there are only a few years left on a mortgage, refinancing can cost money instead of saving money in the
long-run. A monthly payment will be lower when the loan is extended over a long
period of time, but the costs will be higher due to an increase in interest
payments. It’s worth it to pay off the mortgage if possible.
Interest
Rates
Examine
your current interest rates: This is important information to bear in mind when
considering refinancing, because the difference between the current and future
interest rate needs to be big enough to make the process worth the time and
effort. A percent difference of 1% might not result in significant savings. In
addition you must compare the quality of customer service before making a
decision.
Transaction Costs
Transaction
costs include:
ü Commitment fees
ü Fees for Professional Services including
Accountants, Valuators, Surveyors etc
ü Stamping and Mortgage registration fees
Monthly Payments
Monthly
payments are important, but so is the length of the loan. It might be
beneficial to refinance for a fifteen-year instead of a thirty-year loan. A
fifteen-year loan is at a higher interest rate, which saves money in the long
run but increases the monthly payment.
It
might also be possible for you to pay your mortgage weekly instead of once a
month. This will make the total seems more manageable.
Debt
consolidation is another goal of refinancing. If you have both a first mortgage
and a home equity mortgage, combining the two mortgages into one fixed-rate
mortgage levels out the payment over the loan term.
In
some cases, a mortgage refinance makes sense. In other cases, it may be more
prudent to stick with your current mortgage.
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