What is Refinancing?
Basically, refinancing a mortgage is the process of replacing your existing loan with a new one. Your new loan will pay off your current mortgage.
However, the replacement should have better features or terms that will improve your finances. It’s essential for you to make sure you have a clear understanding of the terms and their implications before refinancing.
Here are the things to consider before refinancing your home.
Lower Interest Rates
One of the reasons homeowners may refinance their property is to take advantage of lower interest rates than their existing loan. For some, shaving at least 1% of their current mortgage rate is enough to save big bucks.
Imagine – You have a 30 year-fixed-rate mortgage that’s charging 6% interest refinancing at current interest rates could reduce your monthly payments by roughly $100 a month for every $100 000 you’ve borrowed.
Typically, it would be best if you have an opportunity to refinance to a shorter term, especially when the interest rates are low. It is a smart way to lessen your expenses.
Shortening the term of your loan means paying more monthly, right?
However, refinancing from 9.0% to $5.5%, for that 30-year fixed-rate mortgage on a $100,000 home can let you cut the term in half to 15 years, with only a slight change in the monthly payment.
Adjustable Rates and Fixed Rate Mortgages
Usually, adjustable rate mortgages (ARM) initially offer lower rates than fixed mortgages. ARM continues to increase as time passes and will eventually be higher that fixed-rate-mortgages if you do not refinance before the rate adjustment.
When this occurs, it is advisable to convert to a fixed-rate-mortgages and eliminates the potential risks of interest-rate hikes.
Alternatively, if you’re going to put your property on the market, adjustable mortgages are better than fixed-rate mortgages.
As the interest rates continue to increase, you won’t have to worry about future increases because you won’t be there anymore.
Yes, there is a cost associated with refinancing. Here’s a breakdown of fees you may encounter should you choose to refinance. you or will be worth the hassle, here are the lesser-known fees you might encounter when refinancing.
- Application fee can cost between $75 to $300
- Prepayment penalty costs one to six months worth of interest payments
- Appraisal fee costs about $300 to $600
- Home Inspection fee costs about $175 to $350
- Title search and title insurance costs about $700 to $900
- Attorney review/closing fee costs about $500 to $1000
Now that you’re ready to speak with a lender about refinancing your home you can call one of the trusted mortgage lenders listed below.
In search of other reliable services around the area? Click here for a consolidated list of trusted vendors near you.
(GOLD STAR MORTGAGE FINANCIAL GROUP)
(FAIRWAY INDEPENDENT MORTGAGE CORPORATION)
(EMBRACE HOME LOANS)