But a better interest rate may not end up resulting in a lower effective cost of capital either.
When interest rates drop, and your goal is to secure a lower rate than you already have, then it stands to reason that you likely have a fixed interest rate mortgage term.
If you had a variable interest rate mortgage, then a drop in interest rates would also drop your mortgage rate.
Unless the variable rate mortgage discount was lower with another lender, chances are you would stay put with your current mortgage.
In situations where you have fixed interest term and you want to reduce the interest rate you’re paying, then the first thing you will need to understand is what will be the prepayment penalties and mortgage transfer fees that you are going to incur to move from one lender to another.
Its certainly possible to secure a lower interest rate at another lender while paying a high enough prepayment penalty that you are no better offer or even worse off depending on the penalties incurred and the new mortgage term you sign up for.
Mortgage refinance for better rates should always start with a calculation of the net effective rate which will factor in all the costs of getting a new mortgage somewhere else and paying out an existing mortgage from the new mortgage proceeds.
If the calculation shows that your net effective rate is going to be less through a mortgage refinancing action, then its something to definitely consider.
But if the reverse is true, then getting a lower posted rate on a new mortgage, but paying a higher effective rate inclusive of all costs doesn’t make a great deal of sense.
The best way to approach a mortgage refinance assessment is to work through an experienced mortgage broker who can help you identify and understand all the relevant costs as well as work through the calculations with you to determine what are the best and most relevant options to consider.
If you would like to find out more about how to manage the mortgage refinance process for optimal results, I suggest that you give us a call and one of the members of our team will be happy to get all your questions answered right away.