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Renew, renegotiate or refinance?

Jackie Woodward for Golden Girl Finance
In general, the same tax deductions are available when you’re refinancing a mortgage as when you’re taking out a mortgage to buy a home.  Learn more about mortgage refinance tax deductions at the TurboTax AnswerXchange.

If your mortgage is up for renewal within the next 6 months, you may want to start thinking about what you’re going to do when your mortgage term ends. While you could renew with your current lender, you may be missing out on potential mortgage interest savings. It’s most often in your best interest to see what else is available for you before you sign on the dotted line of any mortgage commitment.

This week, I want to highlight the mortgage options you have at renewal time so you can make an educated decision on how to proceed into the next term of your mortgage.


Renew your mortgage with same lender

If you don’t want to make any changes to your current mortgage amount or amortization, a simple mortgage renewal could be the solution for you. Your existing mortgage lender will usually send you an offer to renew near the end of your mortgage term or maybe sooner, depending on your lender. This document will contain the different mortgage term rate offerings for you to choose from. The benefit of renewing with your existing lender is minimal paperwork is required as, most often, you are not required to re-qualify for the mortgage and there’s usually no costs involved unless your lender is charging you a renewal fee. This is ideal if you just want to sign on the dotted line, though the downside is you may not have initially been offered the best rate available. Often, rates are negotiable and you need to be aware - you don’t get what you don’t ask for. However, before having the rate talk with your lender, do some research first to determine what exactly the “best rates” are for your current financial position.


Renegotiate your mortgage with a different lender

If you’re okay with your existing mortgage amount, but want to make changes to the interest rate or any of the other terms of your contract not offered by your current lender, you may want to look at the possibility of renegotiating your mortgage with a different lender. If you’re going to look at this option, be prepared to provide updated mortgage application details as well as supporting documentation to your new mortgage lender. As you don’t have a mortgage repayment history with this new lender, they will want to re-qualify you for the mortgage, which will also involve ordering your credit report. Usually a mortgage “switch” doesn’t involve any costs charged by the new lender as they will cover them, though there may be some small costs of $200-$300 charged by the lender you are leaving. Talk to your mortgage professional about any costs involved to renegotiate your mortgage with a new lender, as there are some exceptions.


Refinance your mortgage

A refinance is perfect for you if you want to access your home equity at renewal time. Refinancing your mortgage allows you to restructure your mortgage amount, term, interest rate and amortization. If you have sufficient equity available, this can allow you to pay off debt, invest, renovate, and more. There are some costs related to refinancing your mortgage, which may include appraisal and legal fees, though they usually aren’t as high as what you paid when you originally purchased the home. Some lenders will also offer to pick up some of the costs to their refinance customers or offer some small cash back amounts to help reduce any out-of-pocket costs that need to be paid. You can also talk to your mortgage professional about paying some of those costs from your refinance funds at closing time.

The next step with a refinance is deciding on which of the three ways you want to access your equity at renewal time:

  1. Restructure your first mortgage to accommodate the extra funds you want out of your home.
  2. A second mortgage will allow you to leave your first mortgage details the same, but access equity by obtaining a second mortgage behind your first one. Be careful though, as second mortgages may come with higher rates and, possibly, fees.
  3. Or, if you qualify, a home equity line of credit could be the solution you’re looking for. It can be registered behind your first mortgage and offers a variable interest rate, an open term and interest only payments.


Be choosy

A lot can change during the term of your mortgage, including income, assets, debts, and financial profile, among other things. It’s never a bad idea to give your mortgage a check-up at renewal time to ensure it aligns with the financial goals you are trying to achieve. Don’t be afraid to explore how you can make your mortgage work to your benefit by partnering with an experienced mortgage professional on the perfect financing solution for your specific situation right now.

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