Should I Refinance My Home Mortgage?
If you’re a homeowner who took out a mortgage when you first bought your home, you have likely heard the term ‘refinancing’ used to discuss modifying a mortgage. Below we’ll explore the process of refinancing your mortgage, including how it can benefit you and a few considerations you’ll want to give some thought to before taking the next steps.
What is Refinancing and How Does It Work?
In essence, refinancing refers to the process of getting an entirely new mortgage for some purpose. Over time as you pay your initial mortgage off and the value of your home appreciates you will build equity (which refers to the home’s value minus any outstanding debt) in the home that can be used to secure new financing.
How Refinancing Your Mortgage Can Benefit You
The main benefit of refinancing is your ability to get a lower interest rate for the remaining portion of your mortgage loan. As you continue to pay off your mortgage and are responsible with your other debts, your credit score will increase and this will impact the interest rates that you have access to. The market will also fluctuate and you may find that rates are far lower than they were when you first purchased your home.
If you have built up significant equity in your home over time you may also be able to take some of the equity out in order to use these funds for other purposes, such as a major renovation or upgrade.
Things to Think About Before Refinancing
As a refinancing is a major financial transaction, there are a few items that you’ll want to consider:
You’ll Be Re-Qualified – Remember – a refinancing is essentially a brand new mortgage loan, so you will have to go through the qualification process with your lender again. If you have been paying your payments on time, your credit score is good and you have a stable monthly income you’ll have nothing to worry about.
How Much Will you Save? – While most homeowners typically refinance their mortgages to get a lower interest rate, there is a cost attached to the refinancing itself. If you are only going to save $50 a month on your payment but the refinancing costs $3,000, it will take five full years to recoup that investment.
Consider the Mortgage Term – If possible, try to shorten your mortgage term when you refinance. For example, if you are currently nine years into a thirty-year mortgage term and you can refinance into a fifteen-year fixed mortgage you’ll save a total of six years. This can drastically reduce the amount of total interest you pay.
How to Get Your Refinancing Started
When you’re ready to discuss refinancing your mortgage you should get in touch with the bank or underwriter who you worked with to set the loan up when you bought your home. They’ll have all of the necessary details and can show you exactly what you stand to gain or lose in the refinancing process.
If you have additional questions about your home or your mortgage, the real estate professionals here at 8z Real Estate are happy to help in any way we can. Contact us at your convenience by phone or email and let us know how we can assist.