Thinking About Refinancing
There are many personal reasons that may get you thinking about refinancing your home. The choice of whether to refinance or not can be daunting if you don’t understand the in’s and outs of mortgage refinancing. The goal of this article is to help your decision making and educate you on the pro’s and con’s of refinancing your home so you feel fully confident in your choice.
The top 5 reasons to refinance
1. Shorten the term of your loan
Keeping track of loan term options and talking to a loan specialist could end up saving you tens of thousands of dollars. Depending on the housing market fluctuations and your credit background, you could qualify for new financing opportunities that allow you a shorten the length of your loan while also lowering the monthly interest payments. Going from a traditional 30-yr mortgage to a 15yr, 10yr, or shorter term mortgage will lower the interest rate you will have to pay and will ultimately result in reducing the overall cost of the mortgage.
2. Lower the payment of your loan
If you have high monthly mortgage payments this may be a good option to free up some of your expendable income for things like investments or savings. The cautionary attribute to this option is that it can result in lengthening the term of your loan.
3. Move to a fixed rate loan from an adjustable rate mortgage
An adjustable rate mortgage is a loan whose interest rates are partially dependent on the credit markets. With an adjustable rate mortgage, you may have a low interest payment now but market instability could threaten higher future payments. With a fixed rate loan you can confidently calculate your finances without having to worry about any surprise increases to your monthly payments.
4. Cash out home equity
If you have some major expenses coming up (IE: college tuition for you or a family member, etc.) or are looking to invest a portion of your equity back into yourself (IE: starting a business, buying another home, remodeling your current home to increase value, ets.) cash out refinancing could help with the capital you need.
5. Improved borrower profile
If your FICO score or any of the other factors that affect your loan qualifications have improved, it may be a good time to think about refinancing. The better your qualifications are the more refinancing opportunities you will have to find better loan options.
What should I know before refinancing?
It’s first important to define why your want to refinance your home. If the reasons above don’t describe what you are looking for, start by speaking to a loan specialist. They will be able to answer all your questions as well as direct you to your best mortgage refinancing options. Another good way of determining whether refinancing is the right option for you is by using a refinancing calculator. This will help you understand what your new monthly payments will be as well as how much you will save by refinancing.
When should you not refinance your home?
The best way to think about a mortgage is long term. There can be fees associated with refinancing including a percentage of your loan principal or a refinancing fee. Again, knowing and understanding ALL your refinancing options is crucial. If you are not sure how long you will be living in your current home or if you plan on moving out with 2 – 5 years, refinancing may not be the best option for you.
Is refinancing the best option for you?
In conclusion, here is a breakdown of steps to decide whether refinancing is the best option for you.
Define your reasoning:
Understanding your reasons for refinancing and clearly defining the pro’s and con’s before moving forward.
Know your options:
If you are considering refinancing a home, discuss your options with a loan specialist.
Understand your current financial position:
Checking your FICO score and having a copy of your financial/ credit history will help you know what your chances of qualification are.
Know what you can afford:
There are numerous tools available to calculate and determine what you can afford. If you do your research and understand your financial limits you will be fully equipped to make the best decision possible.