What to Know About Refinancing
A refinance may be on your radar as a viable option for reaching new financial goals if you have been a homeowner for awhile. Maybe money is tight or you are ready for home improvements. A refinance may be the solution to free up capital.
To put it simply, refinancing your mortgage loan means replacing your existing mortgage with a new loan and new terms. And this can be a smart choice financially in several scenarios.
Why should you refinance?
People who decide to refinance likely have clear financial goals on the horizon and are planning to stay in their home for awhile.
Many homeowners go down the path of a refinance for lower interest rates. This is also known as a lower monthly mortgage payment. If having extra money each month is your goal, you should make sure your credit is up to par. When your credit score is good, your interest rate will lower, and your monthly payment will be lower as well.
Others look to refinance to cash out the equity on their house. This might cover looming debts, home improvement projects, and extra cash for things such as college tuition or holiday spending.
After the financial crash in 2008, refinancing became a good option for those wanting to convert from an adjustable-rate mortgage to a fixed-rate mortgage. Some are still in adjustable-rate mortgages with rising variable rates. A refinance with a fixed-rate mortgage gives some peace of mind when it comes to future rate increases.
On the other side, some want to be debt-free and look to a refinance to shorten the life of the loan. Refinancing from a thirty year to a fifteen year mortgage term will knock out your loan in half of the time. This frees up funds later in life for other important expenses such as a larger retirement fund.
Refinancing can also release capital to help with unpaid tax liens for homeowners that are nervous about potential garnishments or tax filing in the future.
While the sound of a refinance might be appealing, you should tread carefully because those benefits don’t come without a price.
Count the Cost
Before you start the refinancing process, you should make sure to speak with a mortgage lender to get a clear picture of how much the new loan will cost. Depending on your situation, you should consider several fees such as a refinance application fee. This fee is non-refundable, even if the application is denied. There is also the appraisal fee and a loan originator fee. These can can add up to 3% to 6% of the loan’s principal.
With this said, the cost of a refinance can outweigh its benefits, especially if you do not plan on staying in the home long. Work with our mortgage lenders to learn about your options and to see if a refinance is the right move for you.
Would you like to know more about refinancing? Click here to contact our experts at Lending Corner today!
Courtesy of Cuselleration