Refinancing Your Mortgage – Is It The Right Move?
We all aspire to buy the dream house, decorate it exactly like we want to, and yet, pay off all our debts. In the real world, it might happen only if you are super rich. Buying a house might involve taking a mortgage for most people. A mortgage is a loan taken for buying a house. With the course of time, homeowners pay off their mortgage. The problem is that over the years the terms and conditions of the initial mortgage might not be very convenient for the homeowner in his present situation. What will he do then? He will refinance his mortgage. Did you know refinancing saved homeowners more than $4000 in a year? If you have a mortgage for 20 years, then imagine the amount of money you can save!
Why Should You Refinance Your Mortgage?
Refinancing your mortgage can have a lot of benefits and even save you money every month. Here are some reasons you should refinance your mortgage.
- Get a lower interest rate: The first and foremost reason for refinancing your mortgage has to be to lower your interest rate. If you can lower your interest rate by 2% you must go for refinancing. However, experts agree that even 1% lower rates can save you money. So, you end up paying a lot less than you were paying earlier as a premium for your house.
- Decrease the term of the loan: With a lower interest rate, homeowners can easily change the loan term. Suppose, you had a fixed mortgage for 30 years. With a lower interest rate, you might be able to change the loan term to 15 years and pay off your debt. It will, of course, increase your premium each month.
- Change in financial condition: Your financial status must have changed from the time when you got your mortgage. You might have saved quite a bit now, or you have new expenses that are making life difficult for you now. For both the cases, refinancing can be the answer.
Types of Mortgage Refinance
- Rate-And-Term Refinance: If the mortgage rate or the loan term or both of them change with refinancing it is called Rate -And- Term Refinance. For example, a person can change his loan term from 30 years to 15 years or change the mortgage interest from 9% to 6%, or change them both. Most of the refinances are this kind especially when interest rates fall.
- Cash-Out Refinance: In this kind of refinancing, either the mortgage rate goes down or the loan term is shortened but what happens here is that the principal amount borrowed goes up. This kind of refinancing has a more stringent approval standard.
- Cash-In Refinance: As the name suggests this is the exact opposite of Cash-Out Refinance. In this kind of refinancing, the house owner gives cash to pay part of the mortgage. That way, the mortgage rate becomes lower.
Points To Remember While Refinancing
Now that you have decided to refinance your mortgage, it would be helpful to keep these points in mind before you take the plunge.
- Check your credit score first. If your credit score has gone up since you took the mortgage in the first place, then there is a chance that your mortgage rate might go down. Based on your credit score, your rate might go down to 1.5%. Check your credit score now and see if you have a FICO score of 760 or higher.
- Mortgage refinance can cost quite a bit. Which is why it is prudent to calculate the break-even point. If you are wondering how to do it, we can help. First, you need to decide for how long do you plan to stay in the house. Now you have to find out how much will the mortgage closing cost be and divide it by the monthly savings due to the refinance. If the result is equal or more than the number of years you want to stay in the house, refinancing makes sense, if not do not go for it.
- Do your research work before refinancing. There are several lenders out there. So, find out who can give you the best rates. Don’t get fooled by lenders who offer “no-cost refinance”.
- Find out what are the documents you might need to do the refinancing and keep them ready.
Now, you are all set for your refinancing. Hope we have been able to help you here.
More in Financial Advice
Here’s How You Can Work As a Team With Your Spouse To Save Money
As husband and wife, you can make a great team and sort out several household issues quite effectively. Financial matters are...January 29, 2021
The Rise of Sophia Vergara, the Highest Paid Actress in the World!
Sophia Vergara tipped her nearest competitors, Anjelina Jolie, and Gal Gadot, to become the highest-paid actress in Hollywood. Her net worth...January 27, 2021
Five Financial Advice We Would Have Given To Our Younger Selves!
We are all one decision away from a different life. So it is no wonder that we often look back at...January 21, 2021
Culinary Maestros: The Richest And Most Famous Chefs In The World
Almost everybody knows now that top-tier chefs earn as much as, and even bigger than, celebrity singers, actors, sports stars, and...January 20, 2021
How To Buy A Modular Kitchen For Your Home
Home space crunch is an ugly reality that most homeowners keep battling on an everyday basis. If you have a small...January 19, 2021
What Is A 401(k) Rollover And What Can You Do About It?
A 401(k) is like a retirement savings scheme, offered by employers to their employees. It’s a government-managed account that is different...January 15, 2021
Five Super Fun Activities to Stop Being Lazy in the Winter and Rev up Your Regimen!
While winters may mean staying put in bed, drinking a lot of hot chocolate, and watching Netflix, keeping yourself snug with...January 14, 2021
Shhh… Here’s How Oprah Built Her Enormous Fortune!
Oprah Winfrey is a name to reckon with in the entertainment world. She is an American talk show host, actress, television...January 12, 2021
Five Ways To Have A Sustainable And Greener Kitchen!
While we all understand the need to make our kitchens more eco-friendly, we hardly know where to start. Is eating more...January 11, 2021