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refinance mortgageIn the last few years, there has been a boom in refinacing, as people try to take advantage of lower interest rates to refinanced their homes. A refinance simply means you are paying off your original loan and getting a new loan at a much lower interest rate. This means you will have to still pay the same closing cost and fees unless you are able to work out a deal with your broker or lender.
This website will help to inform you about all the parts of refinacing a home.
As mentioned above, refinacing is taking out a new mortgage to pay off an unpaid mortgage loan. It does not mean to change your current mortgage. Some people get confused about think that by refinacing, the amount of years left on their current mortgage will stay the same. This is not true.
Remember all that paperwork for your first mortgage? Refinacing a home involves most of the same steps and fees that you went through to get your first home loan.
So what's the point of refinancing?
To save money of course! If your interest rate is at least 2 percent higher than the current interest rate, it might not be a bad idea to refinance and save some money off your monthly payment. Your new mortgage will still be for the same amount as your original mortgage. Your savings comes in the lower interest rate.
So why don't we refinance right away when the current interest rate is lower by 1 percent?
This is basically when you refinance, you have to factor in all the closing costs and fees that a mortgage lender will charge. Some mortgage lenders have advertised "no-cost" and low-cost refinacing packages that help reduce or eliminate any expenses of refinacing.
There are a few other factors to think about when refinacing a home. If you don't plan to stay in your home for too long, the savings will not really pan out to be any savings due to the refinancing cost.
How to Decide?
Take a look at some of the reasons below why you should refinance. Talking to a mortgage lender is also a good idea. They are qualified to help make a decision. Try talking to at least a few brokers as some of them might presure you into refinancing so they can collect on commission.
When Does Refinancing Make Sense?
This page won't be able to cover all the grounds as to when refinancing a home is a good idea, but will list some of the more common reasons why people should think about refinancing.
1. Lower interest rate resulting in saving money
This is the most common reason why people refinance their home. If your first mortgage has a much higher interest rate then the current interest rates, refinancing does make sense. By taking out a new mortgage at a lower rate, you will lower your monthly payments. If you don't plan on living in the same place for more than a few years, then the cost of refinancing will not end up saving you any money because of all the refinancing cost and fees.
The general real is to refinance when there is a difference of at least 2 percent between your first interest rate and the current interest rate to cover refinancing costs. Some lenders today are offering lower fees, so some people might be able to get away with refinancing when the difference in interest rate is around 1.5 percent.
2. Convert an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
If you have an adjustable rate mortgage because of its lower initial interest rate and see that the current interst rate is low, refinancing to a fixed-rate mortgage will give you a more steady monthly payment.
3. Convert an adjustable-rate mortgage (ARM) to an ARM with more desirable features or lower rates.
A lot of adjustable-rate mortgages have protective features that limit the amount the interest rate or monthly payment can increase. This is called caps. Sometimes the current market will have a more attractive adjustable rate mortgage with a lower cap that will ease how much you might have to pay, resulting in savings.
4. Build up your equity faster.
If you have more money since the first time you took out a mortgage, you may think about getting a short term mortgage so that you can own the home before you get too old. The monthly payment will likely be more, but your long term savings in paying less interest along with a lower interest rate will result in a well worth savings in some cases.
5. Convert some of your equity to cash.
If you took out your mortgage some time ago, you will have begun to reduce the outstanding principal on your home loan. That means you’ll be able to finance a much larger amount than you owe on your current home mortgage loan. You can use the difference in savings, which can be tens of thousands of dollars for major purchases, or to finance college costs for your kids.
If you think you would like to refinance your home, fill out the form below and we will have a mortgage lender get in touch with you. mortgage advice