Four Reasons To Consider A Refinance
As the single largest debt most homeowners have to manage, it makes sense that you’d want to give your real estate finance portfolio a check-up at least once a year.
There are many reasons to consider refinancing your home loan. Below are four of the most common:
1. A Drop in Mortgage Interest Rates:
The most common reason: to get a lower interest rate. Because interest rate and loan amount determines the total cost that a borrower will pay for a loan, it makes sense that the lower the interest rate, the less the overall cost. Interest is calculated on a daily basis and usually paid back to the lender on a monthly basis.
2. Lower Payments:
Lowering a mortgage payment can be achieved by lowering the mortgage rate, lengthening the loan term, combining two or more loans or removing mortgage insurance (available once you’ve established at least 20% equity).
3. New Mortgage Program:
Refinancing an Adjustable Rate Mortgage (ARM) to a new Fixed Rate Mortgage (FRM), combining a first and second mortgage or paying off a balloon loan are all good reasons to consider a refinance. Another is shortening the term o f a loan, say from a 30 year to a 15 year (doing this saves substantial interest cost over the life of the loan).
4. Debt Consolidation:
With enough equity in the home, paying off consumer debt by combining all debts into one lower monthly mortgage payment can significantly reduce the short-term deficits in a budget. If the debts are on higher cost interest-bearing credit cards, this might also make sense. However, it’s important to keep in mind the total cost of that debt by adding it into a 30 year mortgage payment.
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Frequently Asked Refinance Questions:
Q: Do I have to refinance with my current mortgage company?
No, you may choose any company to refinance your mortgage since the new loan will replace the existing mortgage.
Q: Is it easier to refinance with my current mortgage company?
It is possible your current mortgage company may require less documentation, but this could add additional cost or a higher interest rate. Do your homework and shop around to make sure you’re getting the best deal.
Q: Will I automatically qualify if I’ve never made any late payments?
No, you will have to qualify for your new refinance just like if you were buying a home. However, certain programs will allow for reduced documentation like a FHA to FHA Streamline Refinance. Qualifying will be based both on your personal financial situation as well as by an appraisal of the property to determine that there is sufficient equity to complete the refinance.
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Related Article – Refinance Process:
- Refinance Process Overview
- Mortgage Approval Process
- Calculating The Net Benefit Of A Refinance
- Should I Refinance Or Get A Home Equity Loan To Make Improvements?
- What Do Appraisers Look For When Determining A Property’s Value?
- Understanding The Difference Between Appraised Value vs Neighborhood Listing Comps
- Five Myths About Home Values
August 2, 2011 by Andrew Vierra · Leave a Comment
Andrew is a veteran Mortgage Banker & Broker with extensive experience structuring residential home mortgages. Our home loan products include FHA and Conventional financing; I specialize in VA home loans for active-duty and military veterans.
