When you become a homeowner, things are bound to change after taking out your initial mortgage loan — your personal finances, home equity, debts, and your credit score. These changes in your personal finances lead to better mortgage loan options — including the option to refinance your mortgage rate!
What Does It Mean to Refinance Your Home?
Refinancing your home allows you to change the terms of your mortgage loan by taking out a new one and replacing the existing loan terms. The Mortgage Reports best describes it as erasing the debt on your current mortgage so you can get a new mortgage that saves you money or helps you to accomplish other financial goals.
Reasons for Refinancing
A few reasons homeowners would consider refinancing include:
• Lowering their interest rates
• Shortening or lengthening the term of their mortgage
• Converting from an adjustable-rate mortgage to a fixed-rate mortgage (or vice versa)
• Raising funds or consolidating debts
Before refinancing your home, it’s important for you, as the homeowner, to determine whether it will be a wise decision financially. Similar to your original mortgage, refinancing will require between 3% and 6% of a loan’s principal, an appraisal, title search, and application fees.
Drawbacks and Bad Reasons for Refinancing a Home
When deciding if refinancing your home is right for you, you should consider the drawbacks, such as cost and fees.
When refinancing into a lower interest rate, be sure to determine the overall cost of the loan. If you stretch out your loan payment into a significantly longer period, you can end up paying more in interest to borrow the money and be stuck with decades worth of mortgage payments.
Keep in mind that when you refinance, you’ll be paying closing costs and fees that can take time to pay off and your credit score will be pulled by lenders, which can be harmful if it is pulled too frequently.
Money and time saving tip: Before making a final decision on whether or not you will refinance your mortgage, include all costs and fees in your refinancing calculation to avoid unnecessary extra loan payments, if possible.
So, what are your options for refinancing? There are three types of refinance mortgages:
• Rate-and-term: Homeowners can change their existing mortgage rate, length of the mortgage, or both.
• Cash-out: Homeowners can cash out their home equity
• Cash-in: Homeowners can close with cash in order to pay down the loan balance and lower the amount owed, leading to a lower mortgage rate, a shorter loan term, or both.
• As your personal finances change over time, so do your mortgage options
• Refinancing allows you to replace your mortgage loan with a new one to help pay off your home faster
• The drawbacks of refinancing can include costs and fees
Why was the mortgage so clingy?
It hated being a-loan!
Are you considering refinancing your home? Chat with our 24/7 bot, Lucy! She’ll answer your refinancing questions and put you in touch with a Loan Officer.