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Refinancing Fundamentals When Not to Refinance





What is refinancing? It is a form of loan that replaces an existing one. In other words, with refinancing, you can pay off an existing debt with another that bears more favourable terms.

Many people resort to this kind of financial option primarily because they want to get better interest rates. Perhaps, at the time that they took on the mortgage, rates are not as low as today's. So, it makes sense for them to refinance so they can take advantage of the best mortgage rate - Toronto or elsewhere - that is not available then.

But economists believe that despite today's all-time lows when it comes to interest rates, refinancing is not an option for everyone. While there are many instances that are ideal for refinancing, there are also equally many cases that do not merit this kind of option.

What are these? Let's look at them one by one.

1. When the value of your property has gone down.

If you are planning to refinance, you should make sure that you have kept your borrowing at less than 80% of your home equity - of your home value. This way, if you get another loan, you have higher chances of getting better rates. But if your borrowing has gone to as high as 90% of your home value, then you may want to reconsider and kiss your refinancing (Woodbridge or elsewhere) plans goodbye. Otherwise, you may just be putting yourself in a deeper financial trouble. More importantly, you seriously run the risk of losing your home.

2. When you want to use the money to pay off your credit card debts.

Many people resort to refinancing in the hope of paying off their credit card dues. While this may seem like an ideal move, this usually won't solve the problem. This is especially true if you only intend to erase your debt and not do something about your spending behavior. The real problem is how you are overspending and getting a loan to pay off the consequence of such a behavior won't nip the problem in the bud.

Therefore, if your goal is only to clear your credit record and not adjust your "lifestyle," then you may want to consider other options besides refinancing.

3. When you have been in the first loan for a long time.

If you are on a 30-year mortgage and are paying for it for 20 years now, it is not a very good idea to get another one - even if it bears the promise of lower interest rates. At first glance, it looks like you can save on the interest rate department, but if you will truly analyze your situation, it may not be that favourable. Getting another 30-year loan might become more expensive for you. Not only that, but getting another long-term loan will only prolong your agony - the agony of having a debt on your roof.

Refinancing is a great option. But once again, it is not for everyone. So if you are considering to get one, think carefully. Don't rush into the decision. Seek professional advice if you must.

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About Author Bary Dawn :

At AMortgages.ca , you will find all you need to know about refinancing (<a href="http://www.amortgages.ca/" target="_blank">http://www.amortgages.ca/</a>) and refinancing - Woodbridge (<a href="http://www.amortgages.ca/index.php/en/allegro-mortgages-best-mortgage-woodbridge" target="_blank">http://www.amortgages.ca/index.php/en/allegro-mortgages-best-mortgage-woodbridge</a>) or anywhere else in Canada. Visit the site too if you're looking for the best mortgage rate.


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Article Added on Sunday, March 7, 2010
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