Should You Refinance Your Home?
If you want to decrease your mortgage payments or you want to pay your home loan faster, in this case, refinancing can be a good option. In refinancing, you swap your current mortgage for a new one with more favorable terms. Although refinancing has many advantages, this process also has a few drawbacks.
Refinancing a home is a primary financial decision, and you should not go to refinance without apt analysis. When you choose to refinance, your new lender pays off the old mortgage, and it is replaced with a new mortgage. Many people choose to refinance to decrease their monthly payments, but some people go for refinancing to pay mortgage debt more quickly.
How to refinance?
Once you have decided to go for home mortgage refinance, there are a few steps involved. The first step is to know about your credit score. Your credit score will partially determine the rate you are going to get. The second thing you need to know is the current value of your home that can be found through online research on online real estate sites. The third step is research about mortgage rates; once you find a rate which is sensible, now you are required to gather all mortgage-related documents, bank statements, pay stubs, or anything that your lender requests from you. Now you can lock your rate with the lender. You must have some cash to pay for property tax, closing costs, and fees.
What are the benefits of refinancing a home mortgage?
You can get cheaper interest rates and lower rates of monthly repayments.
Your overall loan amount can be reduced, and you can pay off your loan faster.
You can take advantage of tax benefits
If you currently have an adjustable-rate mortgage, you can replace it with a fixed-rate loan. That way, you don’t need to worry about your monthly payments increasing if rates should rise.
Any major incident in a lifelike accident, injury, losing the job, or death of any loved one prevents you from fulfilling your financial commitments, in this case, home mortgage refinance can help you to save your home.
Drawbacks of Refinancing
There are many benefits of refinancing, but there are drawbacks that must be considered while going for refinancing. It will cost you money to refinance the mortgage, which cannot be recovered with the low-interest rate for the number of years. To find this out, add up all the costs and figure out the difference between your old mortgage and new mortgage payment. Now divide that difference into loan fee, which is equal to a number of the months you have to pay to break-even. For example, your loan fee is $5000, and your monthly saving is $125. It is going to take 40 months to break-even on the refinance.
You do have an option to shorten your amortization period, but if you are not ready to pay the higher amount or you don’t want to pay more each month to pay off faster, in this case borrower will extend the term of the loan. For example, if you are using a loan of 30 years duration and you have paid five years installments, now you refinance this loan with a new 30-year plan. You have switched to a 35 years plan, which was originally 30 years plan.
If you roll the cost of refinancing from the loan itself, you are going to take a bigger mortgage.
You should take the help of a financial advisor for refinancing a home mortgage. A financial advisor is trained to deal with mortgage-related activities, and it will help you to save money by finding the best mortgage deal for you.
Contact me today to talk about whether or not a refinance is a good idea for you at 303-818-0699.