Refinancing can be a great way to balance your finances, obtain a manageable mortgage payment and take advantage of the equity that you’ve built. As a Downtown Boston condo owner, you’ll likely find yourself grappling with the decision to refinance at some point in time. Following are several factors that will help you determine whether or not this bold financial move is for you.
How Much Equity Have You Built?
Equity is built by making cumulative and sizable payments against your loan balance so that the amount you owe is lower than the assessed value of your downtown condo. There are certainly other ways to build equity as well, such as making property improvements that boost the value of your condo. Most banks won’t even consider a refinance application unless borrowers have at least 10 to 15 percent equity. Because of this, the first step in this process is to find out exactly how much equity has been accrued.
The Impact of Amortization
Amortization is the payment of your principal loan balance over time. When you first start paying your mortgage, most of each payment will be allocated for interest. As time passes, more of these monies will be put towards the actual loan balance and less towards interest. Before you refinance your condo, you should know that this process will reset your amortization clock. Your debt will be rolled over to a fresh, new loan with new terms and features. You will have to build your way back up to loan payments that are reasonably distributed between the principal balance and the loan interest.
The Cost of Refinancing
Refinancing can be an expensive endeavor, which is why it pays to shop carefully and spend plenty of time in planning. You will need to account for the down payment, closing costs, and administrative fees. Although there are definite long-term gains that can be made by choosing to refinance a condo loan, you also have to consider the immediate impact that this might have on your current financial condition. This is especially true if there are any significant concerns about job stability or significant non-recurring expenses.
It may be possible to achieve your financial goals without having to refinance your current condo mortgage. Some lenders are flexible enough to extend the duration of mortgage loans for smaller and more manageable payments. If you want to limit your monthly debt load, this could be the most cost-effective way to do it. This makes it worthwhile to discuss your intentions with your current lender before entering into any binding financial agreements.
Ford Realty is a trusted Downtown Boston real estate brokerage, specializing in the area’s unique neighborhoods, including Boston Midtown If you’re thinking of selling your current place or looking to purchase your dream home, don’t hesitate to reach out to us at 617-720-5454 and schedule an appointment today.
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