Important Things to Know Before Refinancing your Home
When your current mortgage term is coming to an end, you will have a chance to renegotiate terms and rates. This mortgage renegotiation is called refinancing, and it can do many things like pay off your mortgage faster, save money and build home equity.
What is Refinancing a Mortgage?
Refinancing is when you take your current mortgage and renegotiate its terms to select new ones that ill improve your finances. When you refinance your mortgage, you are actually paying of the old mortgage and replacing it with the new one.
There are two things that don’t change when you refinance your mortgage. The original balance will not change, and neither will your collateral.
What Does Refinancing Do?
When you refinance, you usually get lower payments which saves you paying on interest. You can also use refinancing to consolidate debts, pay for important home improvements, repairs and even tuition fees.
Should You Refinance your Mortgage?
There are several reasons refinancing could be beneficial for you. The list below can help you decide if refinancing could be right for you.
- Do you need to refinance your mortgage to lower your monthly interest payments?
- Do you need a refinanced mortgage loan to pay off other high-interest loans or consolidate debts?
- Do you need funds for an emergency? Refinancing can be helpful when you are faced with sudden improvements, repairs or tuition fees.
- Have you built up equity on your home and now plan on using it?(Equity is the difference between the worth of the home and what is owed to the mortgage lender.)
- Are you planning on changing mortgage companies?
- Are you struggling to make mortgage payments? If so, it may be time to refinance so you can reach your financial goals
Refinancing your mortgage can be done as often as you need to, but you have to wait six or seven months between refinancing.
Is There a Good Time to Refinance?
You may be wondering if there is a good time to refinance your mortgage. Refinancing a mortgage depends on many things. It can depend the length of time you plan on keeping your home, does your home even qualify for refinancing, and what you will get from doing this at this time. You should always try to refinance when interest rates are low. If you refinance the loan at the right time, you can save on interest rates. Here are some tips to help you decide.
- How long are you staying? If you are planning on staying in your home for several years, refinancing can be beneficial. Refinancing isn’t a great idea if you are going to flip the house or plan on moving in the near future. You can consider refinancing if you plan on staying in the home for at least five years.
- When your mortgage has a higher interest rate than those homes on the current market, it could be a good time to refinance. If you have a mortgage, you have to wait as least seven months, and make six monthly payments on time, before you consider refinancing.
- Refinance when you need to use your home equity to withdraw funds for an emergency, an important large purchase, or to consolidate debts.
- Refinancing your mortgage is a good idea when you have equity built up on your home.
- If you are considering changing mortgage companies, it may be the right time for you to refinance your mortgage.
It is good to now, you must have credit good enough to qualify for a mortgage refinancing loan. If you need to work on your credit because it’s not the best, this would not be the best time for refinancing your mortgage. See if you are able to afford closing costs on your house, or if your savings are outweighed by costs in the long term. If they are, refinancing may not be the best choice at this time.
Can You Save Money When You Refinance?
Refinancing is your chance to help yourself to save money. Here are a few ideas to help you save money when refinancing your mortgage.
- Fees and Lender Costs: It will help to pay the fees and lenders costs. Look through your mortgage because there are sometimes extra fees and costs. There are sometimes costs like private mortgage insurance, legal fees, and closing costs. If you pay these costs, fees and points, more of your payment can go to the principal reduction every month.
- Have a good or clean Credit Score: Make sure your credit score is good. Hopefully your credit score stayed good or even improved since you got the first or primary loan, and how have you be contributing to your savings and income? If those are both strong, that’s a good thing. While you are in the process of refinancing your mortgage, keep away from using any credit cards or opening any new accounts. Double check your credit score (you can look online for help as there are websites designed to help you.) Make sure all is good and there is nothing on there that is holding you back. If there is something off that you notice, see if you can fix it or get help as soon as possible.
- Be Ready for an Appraisal: Not all mortgages being refinanced need an appraisal, but, an appraisal will help you if your home is worth more than what the lender said it was. When you have an appraisal, clean the interior of the house and make it comfortable. Put pets away, and make sure the temperature is pleasant. Tidy the exterior and make the lawn presentable. Research property values and recent sales in your area and give a list to the appraiser. It will give an idea of the value of the houses in the area.
- Make a Plan: Set something up to keep you on a savings and spending plan. You will be wanting to spend the money you save every month, but be tough and stay on the plan. You don’t want to spend the savings you build up. During the grace period between the old mortgage payments and the beginning of the new mortgage payments, take advantage of that time by paying off debts like a credit card, education or renovation expense. A refinanced mortgage is a new home loan that replaces and updates an old one, and you still have to pay it off regularly.
- Ask questions and do research: Know everything about your mortgage term. Find out what the available terms of your mortgage could be, and find one that suits your financial situation. It may be a good idea to look at a fixed-rate mortgages, as this type of mortgage will help you better plan finances and save money.
If you are still wondering if refinancing your mortgage is the right thing for you, contact your mortgage broker. He or she will be able to discuss your financial situation and work with you to find the right solution for what you need. Refinancing can really help you, and your mortgage lender will be able to give you advice as you begin the process.