What You Should Know Before Refinancing
Getting a new mortgage to replace the original is called refinancing. Refinancing is done to allow a borrower to obtain a better interest term and rate. The first loan is paid off, allowing the second loan to be created, instead of simply making a new mortgage and throwing out the original mortgage. For borrowers with a perfect credit history, refinancing can be a good way to convert a variable loan rate to a fixed, and obtain a lower interest rate. Borrowers with less than perfect, or even bad credit, or too much debt, refinancing can be risky.
In any economic climate, it can be difficult to make the payments on a home mortgage. Between possible high interest rates and an unstable economy, making mortgage payments may become tougher than you ever expected. Should you find yourself in this situation, it might be time to consider refinancing. The danger in refinancing lies in ignorance. Without the right knowledge it can actually hurt you to refinance, increasing your interest rate rather than lowering it.
Faster Payoff Option
Do you want to build up home equity more quickly, and pay off your mortgage sooner? Consider refinancing with a shorter-term loan, such as a 15-year mortgage. Your payments will be higher than with a longer-term loan, but in exchange, you will pay substantially less interest and will build up equity more quickly. If you have had your current 30-year mortgage for a number of years and the loan balance is relatively low, you may be able to do this without increasing your monthly payment — you may even be able to save!
Cash Out Refinance
Are you refinancing primarily to cash out some home equity? Maybe you want to pay for home improvements, pay your child’s college tuition bill, take your dream vacation, whatever. Then you’ll want to qualify for a loan for more than the balance remaining on your current mortgage. If you’ve had your current mortgage for a number of years and/or have a mortgage whose interest rate is higher, you may be able to do this without increasing your monthly payment.
When the time is right to Refinance
Refinancing a home mortgage can be a big decision for many homeowners. Your situation and needs change over time so why shouldn’t your mortgage? Now might be the right time for you to refinance into a lower rate mortgage. You should take the time to consider the following questions to see if refinancing makes sense for you.
- Are you tired of your adjustable-rate that never seems to stop adjusting?
- Is Private Mortgage Insurance (PMI) getting you down when it doesn’t need to?
- Has the time come to save more money every month?
- Are mortgage rates currently lower than what your rate is?
- Will other financial opportunities present themselves as you refinance?
Refinancing is an easy way to solve many of your mortgage worries. Getting a lower monthly rate and paying less over the life of your loan just makes sense. At Select Rate Home Loans we’re ready to find the right refinancing solution for you. Our staff of refinance experts will help you evaluate your mortgage needs and draft a refinancing plan that will save you money.
Be sure to check out our mortgage refinance center to get the information you need so you can make a sound decision for you and your family.
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