How Refinancing Works And When You Should Refinance Your Home Loan
What is Refinancing?
Refinancing involves replacing an existing mortgage with a new loan. People usually refinance their mortgage with the aim of reducing their monthly payments and interest rate. They also refinance their mortgage to change their loan program to a fixed-rate mortgage.
Irrespective of why you want to refinance your home loan, the process involved in refinancing works in the same way when you applied for your first mortgage. In order to get approved, you need to:
Research your loan options.
Have the right financial documents, and
Submit your mortgage refinancing application.
Benefits of Refinancing Your Home Loan
There are many benefits that you can enjoy when you refinance your home loan. Some of these benefits include:
It Lowers Your Monthly Payment
Refinancing your home loan helps to lower your monthly payment. By lowering your monthly payment, you will be able to use the savings for other debts or for your monthly mortgage payment so that you can pay off your loan on time.
It Reduces The Length of Your Loan
Securing a 30-year mortgage would have been a reasonable financial decision for those that took out a home loan in the early stages of their career. However, those that want to pay off their mortgage on time can benefit from reducing the term of their loan.
Refinancing Helps You To Switch From Adjustable-Rate Loan To A Fixed-Rate Mortgage
An adjustable-rate mortgage helps your payment to go up and down in line with changes in interest rates. A fixed-rate mortgage that has reliable and stable monthly payments will give you the assurance that your payment won’t change.
Refinancing Helps You Use The Equity In Your Home To Take Out Cash
As the values of homes rise, you will have enough equity to take out cash. You can use this cash to improve your property, pay off debts and fund other capital-intensive purchases.
When You Should Refinance Your Home Loan
Rates are Increasing
You should refinance your home loan when rates are rising. As a matter of fact, we refinance loans in order to lower the interest rate. An average homeowner can save about $3,000 every year by refinancing their home loan. The amount that you will be able to save per month also depends on the term of your new loan.
You will be able to reduce your monthly payments by refinancing your mortgage to a term that’s longer than what you have left on your home loan.
Your Credit Score Has Increased
Even if rates have reduced, you can still qualify for a lower rate if your credit score has gone up. In order to qualify for the best mortgage rates, then you need to have a FICO score of at least 760.
To Convert An Adjustable Rate Mortgage To A Fixed Rate Mortgage
Refinancing should be done when you want to convert an Adjustable Rate Mortgage to a fixed rate mortgage. This should be done when you know that interest rates may likely increase.
It’s very important to work with an expert that will help you to decide if refinancing s the right option for you. If you’ve not been able to refinance your home loan in the past, the changes in loan programs and rates coupled with increasing home values will help you to reduce your monthly payments. Contact us today at Mortgage Specialists and see how we can help.