Are you wondering whether refinancing your home mortgage is right for you? This quick guide will explore the top 10 reasons to refinance your mortgage, save money, tap into your equity, and reach your financial goals. We will also discuss whether refinancing your mortgage will adversely affect your credit score, the costs involved, and how to determine exactly how much equity you have in your home.
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There are many reasons why refinancing your mortgage loan is a great choice. One of the main reasons why homeowners refinance is to leverage their equity and save money.
Read about the top 10 reasons to refinance your mortgage
1. You Want to Cash Out Equity in Your Home
2. You Want A Lower Interest Rate
3. You Want to Change Things Up
4. You Can't Afford Your Monthly Payment
6. You Have An Adjustable-Rate Mortgage
7. You Want to Shorten Your Loan Term
8. You Want to Purchase An Investment Property
9. You Want to Buy Out Your Spouse
10. You're Paying for Private Mortgage Insurance (PMI)
A home is the biggest purchase most people ever make, and the equity that you gain from paying your mortgage can help to secure your financial future. Many homeowners reach a point where they want to cash out their equity (or a portion) to use it for repairs, medical expenses, college loans, consolidating debt, or other financial investments. Refinancing can help you cash out on your home’s equity and use the money where you need it most.
As a homebuyer, you may have purchased your home to begin building equity but could not initially secure the interest rate you want for the next thirty years. If refinancing your home loan will provide you with a better interest rate that saves you money over time, it’s probably a good decision to refinance.
Tip: If you refinanced your home when the interest rates were extremely low, you don’t need to refinance now. However, if your mortgage rate is above 6.5%, it makes sense to refinance.
Perhaps you purchased your home with a balloon payment or an adjustable-rate mortgage for an extended term. Take the time to look into loan options that will help you each month or even shorten (or lengthen) how quickly you will pay off your home loan.
There is nothing worse than struggling to pay for your monthly mortgage payment. Even if your monthly payment isn’t breaking the bank, refinancing can lower your mortgage payment, give you a better interest rate, remove private mortgage insurance, and shorten your loan term all at once.
Tip: If you refinance to another 30-year loan, as an example, you should be able to lower your payment. Remember that once the term of the loan has been reset, you will pay more in total interest.
If you’re one of the many homeowners who have worked hard to clean up your credit, refinancing may allow you to enter into excellent new loan terms. As your credit score increases, you will have access to improved loan terms and opportunities.
Tip: If you need to improve your credit, make sure you pay your bills on time and only apply for the credit you need
Worried about floating rates from having an adjustable-rate mortgage? Refinancing can allow you to move to a fixed-rate mortgage which will continue to save you money over time. If you’re tired of riding the adjustable-rate mortgage rollercoaster, consider refinancing to a set mortgage.
Tip: With the fluctuation of mortgage rates, remember to lock in your rate.
Shorter loan terms are a goal for homeowners who want to pay off their home more quickly and realize that refinancing will allow them to avoid paying years of interest on their mortgage loan.
You may consider refinancing and cashing out money from your equity if you want to purchase an investment or retirement property. The cash you receive from refinancing and changing your loan terms may allow you to purchase the second property of your dreams!
Tip: If you plan to buy an investment property, understand how rental law works.
This situation often arises during separation or divorce. Spouses who want to buy out their ex can refinance to take over more of the home and let the other party leave with their equity cashed out.
Tip: If you decide to take on the existing loan, ensure you are financially ready to pay off the other person’s part of the home’s equity. The lender will also want to ensure you can handle the loan on your own.
Mortgage insurance may have been a necessity when you first bought your home, but it can be expensive, and most homeowners can’t wait to get rid of it. Refinancing can allow you to take cash out of your home while shortening the length of your loan will allow you to remove private mortgage insurance or PMI. This will reduce the amount you pay monthly and in the long run.
Tip: If the value of your home has appreciated and your loan-to-value (LTV) ratio is below 80%, your lender could cancel your PMI. Check with your lender to find out.
When it’s time to refinance your mortgage, several steps must be taken. First, you do not need to stick with your current lender unless they’re offering you a better rate and deal than other lenders. Shop around, and your current lender may just come calling. Just as you did when applying for your initial home loan, you will need your financial information – including pay stubs, social security information, driver’s license or state ID, bank statements, and W-2s.
Married couples in community property states may be surprised to find out that they need to submit the financial information for each part, even if their spouse isn’t planning to be on the mortgage.
Connect with one of our mortgage specialists to learn more: here.
We will now explore some commonly asked questions about refinancing a mortgage. Many homeowners remember the excitement of buying their homes. Refinancing your loan can help you keep more money in your pocket, so don’t wait.
How long does it take to refinance your home mortgage?
This will vary, but a rate loan may last up to 60 days. At its fastest, it would be a minimum of 15 days. The underwriting process must go smoothly, documents should be submitted when they’re asked for, and some loans or refinancing options will include a home appraisal.
Tip: To get ready to refinance, read the mortgage application checklist.
Will there be closing costs when you refinance?
Generally, yes. However, some home buyers do qualify for a no-closing-cost refinance, which is paid throughout your loan’s lifetime. However, closing costs are more typically included and must be factored in.
How much will you pay when you refinance?
While that amount will vary, per lender, you may pay as much as 6% or as low as 2% of the total value of your loan. However, you may be available to avoid paying the closing cost directly and add them to your loan. Your mortgage specialist at Promise Home Loans will determine that cost over time and get you the best refinancing options.
Ready to get started refinancing your home and saving money on interest? Refinance today and find out the options,www.promisehomeloans.com
