If you are a homeowner, you will have heard of refixing and refinancing. These are both options available to homeowners, designed to help improve their financial situation or to make changes to the terms of their mortgage. But with any decision regarding your home loan, it’s important to consider the benefits and risks, and make a fully informed decision on what is best for you.
Let’s dig into some of the pros and cons of each option.
Pros of Refinancing
Reduce Interest Rates
When you refinance, you can secure yourself lower interest rates on your mortgage. This can be an incredible way to save money over the life of your mortgage.
Shorten Long Term
Refinancing can help you shorten the term of your mortgage. This means you can pay off the loan faster and save money on interest over time.
Convert to a Fixed-Rate Mortgage
If you are currently on an adjustable-rate mortgage, refinancing can give you the chance to secure a fixed rate mortgage. This can unlock more stability, certainty and consistency for your monthly mortgage payments.
Cons of Refinancing
Settlement Costs
If you refinance, remember that you will typically have to pay settlement costs. These can be expensive and therefore, take away from any savings you make from lowering your interest rate.
Qualification Requirements
You may need to meet eligibility requirements to qualify for refinancings. Therefore, you may need to have a positive credit score or eligible debt-to-income ratio.
Resetting Mortgage Clock
When you refinance, it can reset the clock on your mortgage, which means you may end up paying more interest over the lifetime of the loan if the term is extended.
Pros of Refixing
Lower Interest Rates
With refixing, you can also lower your interest rate. However, this option typically only allows you to do so without the ability to change the term or other features of the loan.
Stay with the Same Lender
When you refix, you don’t have to worry about moving to a different lender, unlike refinancing. This can save a lot of time and hassle.
No Closing Costs
With only a simple adjustment of the mortgage terms, there isn’t typically any closing costs involved with refixing.
Cons of Refixing
Limited Flexibility
For those seeking flexibility and more options, this might not be for you. Refixing only allows an adjustment to the interest rate on your existing mortgage and not on any other terms or features of the loan. You also may not be able to choose a loan term or interest rate type. Essentially, there is less option and flexibility with refixing.
Miss Out on Possible Savings
You may not have as much potential savings with refixing than refinancing. This is especially true if interest rates have dropped by quite a bit since the original loan was taken out.
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