What is a Home Refinance
What is Refinancing?
When you have a mortgage that is too expensive or are in a hard financial situation, you may choose to explore new ways to reduce the loan’s costs. You can do this through refinancing.
Refinancing is the method of replacing your existing mortgage with a new one. The refinance should have a flexible monthly payment, lower rates, and better loan terms.
What is the process of refinancing?
- You realize that you are in a financial hurdle and that your loan terms and interests are unfavorable.
- You start shopping for lenders who offer better terms and lower interests. This is the best time to compare rates, loan terms, and if mortgage insurance premiums are mandatory. Remember that you are not limited to your current lender when refinancing.
- Just like applying for the conventional mortgage, you have to fulfill the set requirements and get approved. When approved, the refinancing pays off the existing loan.
Then, you start paying the new mortgage with a lower interest rate and better terms.
What should I consider before refinancing my home mortgage?
Refinancing your home may reduce your costs in the long-term or cost you more money. To understand when you should refinance, you need to ask yourself two crucial questions. These questions will give you a clearer picture of what goal you want to achieve by getting a refinance.
What period do you plan to keep your home?
You need to understand how long it will take to break even. (When you cover all the loan costs and actually start to see the benefits and savings.). Breaking even will take anywhere between a few months to a few years. It’s best to refinance when you are planning to keep your home longer rather than when you are planning to sell. At Mortgage Advisor, we help you determine how long it takes to refinance and whether it will benefit you in the long-term.
What’s your main goal for mortgage refinancing?
Here are two reasons why you may choose to refinance.
- To reduce the monthly payment.
- To reduce your overall interest rate payment.
In most cases, by refinancing, you will achieve lower monthly payments and a lower interest rate. In other cases, you will incur more costs than you initially expected. Defining your main goal for refinancing will save you the headache of incurring more costs. First, identify your reasons for a refinance, and then work from there.
What are the best situations for refinancing?
When you have improved your credit score- You might have taken your current mortgage when you had a poor credit score. But as time elapses, and your credit score increases, mortgage refinance will be a good option. With a higher credit score, you will have access to lower rates- hence reduced total mortgage payments.
Consolidate your debts– When you want to consolidate your debts and easily track it, refinancing will be a great choice. Furthermore, you will gain a better chance of lowering your mortgage rates and monthly payments.
What Benefits do I gain by refinancing?
Reduced Financial Costs– Generally, a good refinance option will have lower rates for refinancing that converts to reduced financial costs for the entire loan term.
You can change the loan type– If you are in a financial hurdle and are finding it difficult to pay your existing mortgage, refinancing will help. By refinancing, you can move from an adjustable-rate mortgage(ARM) to a fixed-interest rate mortgage. A fixed-rate mortgage ensures that fluctuating market rates do not influence the rates you pay. With the fixed-rate mortgage, you have more control over what amount to pay in interest and plan into the future.
Change your loan term– Depending on your financial situation, you can choose to extend your loan term and pay more interest rates with potentially lower monthly payments. Alternatively, you could opt for a shorter loan term with a reduced refinance rate.
For example, you may change your loan term from a 30-year mortgage at a 6% interest rate to a 15-year mortgage at 4.3% interest rates and a higher monthly payment.
What are the Types of Refinancing?
Rate and Term Refinancing
Rate and term refinancing happens when you want to change the loan terms, interest rates, or both without changing the loan amount. You end up paying the same loan amount only at a different interest rate and loan term. An interest rate drop in the market typically influences the rate and term refinancing. You may walk away with cash that does not exceed $2000 when settling your refinanced loan.
Cash out refinance
In cash out refinance, you take a loan out of a portion of your home equity. The mortgage given will be higher than your existing loan, usually a 5% increment. During the settlement (closing), you walk away with tax-free cash that you can use for home remodeling and renovation.
In case you are consolidating, the cash is sent to your creditors, such as your credit card company. You also need to note that cash-out refinancing has stricter approval requirements because it means a higher risk for the lender.
Cash in refinance
With a cash-in refinance, a homeowner brings money to the table to lower their mortgage balance during the closing. It’s the opposite of cash-out refinancing as the cash comes from your pocket and not your home’s equity.
There are different reasons why you might opt for cash-in refinancing.
- To steer clear of premium mortgage insurance
- To remain in the conforming loan limits.
- To lower your loan amount to an allowable level.
We make the refinancing process less complicated.
While refinancing has less paperwork than a first-time new mortgage, it’s still a lengthy process that needs a clear, well-thought-out plan. With the options available for a new mortgage, and frustration of getting the best deal, homeowners may choose the wrong refinance options.
Here at Mortgage Advisors, we have a team that has been doing this for years. We understand the ins and outs of refinancing rates, and we can help you choose the right one. We will look inclusively into your current situation to determine the lender who has the best terms and rates for refinance.