There are a myriad of reasons to refinance your home. Maybe you want to lower your monthly payment or dip into the equity you already have in your home. Whatever the reason, there are a few things you should know and think about before you walk into your lender’s office.
What is Refinancing?
First, the basics. If you are considering refinancing your home, then chances are that you have already undergone the process of obtaining a purchase loan. The process of refinancing is essentially the same. You are simply applying for a new loan to replace your current loan. The only major difference between refinancing and the original purchasing mortgage is that no property is changing owners.
When you refinance, you will still need to follow all the same steps that you did to secure the first mortgage. Checking your credit is a good thing to do, so you have some idea how much you might qualify for. You will want to shop around the lenders in your area. Comparing the home refinance terms from several lenders is an important step. You want to make sure that you get the best refinancing mortgage for you. You’ll also need to gather all the paperwork a lender might require such as tax returns and pay stubs.
Why Refinance?
There are numerous reasons to consider refinancing your home. It is important to be clear about your reasons and goals when deciding on this question. Some reasons to refinance your home are more common than others.
Saving money is one of the most common reasons for refinancing. When interest rates drop, it’s a perfect opportunity to get a loan with a lower interest rate than you currently have. This may lower your monthly payment and give you extra money for other things such as retirement savings, or other expenses that may arise.
Paying off your home faster may be a better way to meet your personal and financial goals. Rather than refinancing for the sole goal of getting a lower interest rate, you would refinance to get a shorter-term loan. So instead of a 30-year mortgage, you would have a 15 year one, While this may cost more per payment in the short term, you will have more money at your disposal quicker than you would with a longer-term loan.
Freeing up equity in your home allows you to pay for important things, such as sending a child to college, remodeling your home or starting a small business, you would likely not be able to pay for otherwise. As long as you have at least 20 percent equity, which is to say that you have paid for at least 20 percent of the property’s total value than this option is open to you. In this case, you would refinance your home into a larger mortgage and use the excess amount to achieve your personal goals.
Is Refinancing a Good Choice for You?
There is no easy answer to this question. It all depends on if the cost of refinancing will help you achieve whatever specific goal you might have in mind. While refinancing can be a good choice in the long run, it is important to remember that it is a decision that will affect you in the long term. It is also important to consider that there will be fees associated with refinancing, just as there were when you obtained the original loan.
Whether or not to refinance is a big decision. The benefits and drawbacks of refinancing will be different for everyone. At the end of the day, only you can decide if refinancing is the right move for you.
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