You may think it is only to swap your mortgage for a lower rate that you should go for a refinance. Well, this is just one reason; there are many more.
Shortening your Mortgage Term
If you are going for a rate-and-term refinance, you get to replace your existing mortgage with one that has a lower rate on it and is for a shorter time period. This means you will be free from paying back your loan in a much lesser period of time. A mortgage for a shorter term would often mean a lower rate of interest, which can help you save. Nevertheless, you still have to think of prepayment penalties and various other costs associated with a refi. It is wiser to check how this is going to affect your finances before you actually jump into it.
Cashing out your Refinance
When you go in for a cash-out refinance, you get to borrow more many than your existing mortgage. You can cash out the difference amount and use it to make home improvements that can increase your equity. For instance, Let us assume the original value of your existing mortgage was $150,000 of which you now owe $100,000. After an increase in equity your home now values at say $250,000. In such a case you can go for a cash-out refi of $150,000 instead of $100,000. You can use up the cash of $50,000 to pay back other loans, make improvements on your home or pay up the down payment of a second house. You don’t even have to pay any mortgage insurance.
Getting rid of Mortgage Insurance
A reasonable chunk of your monthly mortgage payment goes into paying up for mortgage insurance. This is especially true when you have gone for a FHA loan or a regular mortgage, where the down payment was less than 20% of the home value. In case you have paid off some of this debt and there has been an increase in the value of your house, it would be a wise move to refinance your mortgage as you will be able to get rid of your mortgage insurance. However, the criterion is that your outstanding loan amount should be less than 80% of your home value.
Now that we are done with the Why part, let us go on to understand How to Refinance our mortgage:
The first step here is to find out if a refi will benefit you. Here you can talk to your existing mortgage lender about prepayment penalties if any. You may even consult a mortgage broker who can take a look at your financial situation and tell you if it will improve by going for a refi.
The Next step is to find mortgage refinancers, compare their rates and terms and make a decision as to which one to go for. Before deciding on a refinancer it is better to get a mortgage pre-approval which will tell you if you are eligible for a mortgage refinance. Make sure you don’t have to pay up for any mortgage insurance.
The final step in mortgage refinancing would be to submit the application and wait for the amount that will help you get rid of your existing mortgage and start life afresh.
The most important thing when it comes to mortgage refinancing is to time your refi well. The right thing done at the right time will definitely give the right results!
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