Refinancing has grown popular over the years. What this means is that people decide to change their current mortgage.
They go to apply for a new mortgage not because they want to move to a new town or a new neighborhood or a new house. They want to stay in the same town, in the same neighborhood, in the same house. They just want a new mortgage.
Refinancing a home is something that many people do every year. Homeowners refinance for any number of reasons. The reason for most refinancing is to save money in one or more ways. This is often possible because market conditions change quickly while mortgages can remain relatively static for decades.
Reasons for Refinance
There are several reasons why somebody might want a new mortgage, even if they don’t want to move. Here are the top 14:
1. To Save Money
This is the best reason to refinance your home, and it happens whenever interest rates trend even slightly down.
Simply put, you look at your current mortgage. You look at the rates being offered on a new mortgage. You see that the rates being offered are lower than the rate you are paying now. You do the math and realize that if you switch your current rate for the new, lower rate, you could save hundreds, maybe even thousands, of dollars.
So you pick up the phone and call the mortgage company. And you will smile because you know you are about to get the lowest rate possible with the help of the mortgage company.
Bring Down Your Monthly Credit Payment
If your objective is to stay in your home for a number of years, it probably makes good sense to look at home refinance loans that allow you to pay a point or two to bring down your interest rate and overall mortgage payment.
Over a few years, your monthly savings will pay for the cost of the house refinance because of your monthly savings and your lower monthly mortgage payment.
However, if your objective is to move in the next few years, you may never recover the cost of refinancing due to the reason that you won’t stay in your house for a significant period.
Before you decide to look at home refinance loans, you should calculate the point at which you break even so you can determine if a mortgage refinance makes sense.
2. To Upgrade Your Home
Less frequent than for saving money, people refinance their homes to pay for a major upgrade. Upgrades cost money. If they are large enough, they might cost a lot of money.
And there’s a lot of money available as stored equity in your home. Some people tap into that equity to cover the costs of the upgrade, knowing that the value of the house will rise once the upgrades are complete. This is usually done for big projects, such as:
- adding an extension to the house.
- adding a garage.
- building an in-ground pool.
3. To Restructure Your Career
This is another happy reason to refinance your mortgage. Sometimes people want to chuck the nine-to-five and become a freelancer or an entrepreneur.
Freelancers and entrepreneurs who want to buy a new home often face problems getting a self-employed mortgage. Not all the banks consider them a safety risk. Not all the banks have the patience to review their more complex income paperwork. If the bank says “No”, that’s OK. There are mortgage companies out there who will say “Yes” to self-employed mortgages.
When making a career change, you might want to refinance to give yourself more flexibility. A new entrepreneur might want to rearrange all his finances so as to be able to focus on his new business venture.
4. Extra Cash Each Month
The main reason many families refinance a mortgage is to provide extra cash each month. The loan can be extended or otherwise readjusted so that monthly mortgage payments are lower. This provides more income for emergencies, overdue bills or savings.
It is important to note that refinancing in this way sometimes increases the overall cost of the mortgage because more interest is paid over time. It is still a good reason to refinance for families who need extra money for children or other expenses.
Tap Your Home’s Equity if You Need Extra Cash
Your house is a great place to look for extra cash when you need it. Like most homeowners, your house has probably gone up in value and that gives you the facility to withdraw some of that money and put it to use as you need to.
Pay off tuition, credit cards, make home improvements, buy a new car, or even pay for your daughter’s wedding. With a cash-out mortgage refinance, it’s fast, simple and even tax deductible.
5. Consolidate Mortgages
Some people want to refinance because they want to consolidate all the debts into one. This is the “make lemonade out of lemons” reason to refinance. It’s bad news that a family might have so much debt that they need to consolidate, but it’s good news that by consolidating that debt they are able to put their lives back in order.
Usually, a debt consolidation mortgage comes at a much lower interest rate than a variety of credit card debt and consumer loans that are outstanding. By consolidating this debt at a lower interest rate, you can spend less money paying the interest and more money paying down the debt.
Some homeowners have a mortgage and then a second mortgage or home equity line of credit. Managing these two separate debts can become complex or burdensome in some cases. Some families decide to refinance in order to combine two or more mortgage loans.
Consolidating mortgages allows for one simple payment to just one lender. It might even lower overall rates depending on the previous terms. Refinancing in order to consolidate mortgages makes it easier to plan for the future and manage finances each month.
6. Shorten the Term
The finances of a household can change over the years while repaying a mortgage. Some homeowners might actually see increases in income or might receive a financial windfall. It is often a good idea to refinance in these situations.
Refinancing can allow a family with a higher income to shorten the term of the loan sometimes by a significant amount. This reduces the amount of interest paid on the mortgage. It also provides more equity much quicker than loans amortized over 30 years.
7. Lower Interest Rates
A major reason to refinance a home is to get lower interest rates. Interest rates can fluctuate dramatically over many years. Refinancing after market conditions change can save homeowners money on interest payments. Companies like LowVARates.com can even provide special low-interest refinancing for veterans dealing with an unfavorable mortgage.
Refinancing also provides some individuals with a chance to switch from an adjusted rate mortgage (ARM) to a fixed mortgage that is more stable. Reducing interest rates is one of the best reasons to consider refinancing a home.
8. To Pay For The New Kid On The Block
Kids cost money. And sometimes those expenses were not planned when you arranged your mortgage. Refinancing is a useful tool you can use to help rearrange your finances to pay for the new kid on the block–your son or daughter.
Sure, it’s not good that you have more expenses than planned. But at least those expenses are for a wonderful reason.
9. To Survive a Downsizing
This is not such a happy reason to refinance. Sometimes people lose their jobs. They get laid off. They get fired. They get downsized. Their company shuts its doors.
When you lose your job, making the mortgage payments might suddenly get more challenging. We understand. That’s a good time to refinance your home to reduce the monthly or weekly payments until you can get back on your feet. It’s not a happy reason to refinance, but it is a good thing that refinancing is available to you in that kind of situation.
10. To Care for Your Sick or Injured Self
What happens if you suddenly get sick or injured. You might not be able to earn income, and medical expenses could hit the roof. Refinancing to the rescue! It’s a horrible reason to have to refinance, but it’s a good thing the option is there.
11. To Care for a Loved One
You are not the only one who gets sick or injured. Your spouse might. Your child might. Your parent might. And although you might be able to keep earning your income, the medical expenses might be prohibitive. Refinancing your mortgage is one important thing you can do to keep some control over your household finances.
12. Move From an Adjustable Rate Mortgage (ARM) to a Fixed Rate Mortgage
For homeowners who are willing to risk upward market fluctuations with home refinance, adjustable rate mortgages (ARM’s) can offer much lower initial monthly payments.
In addition, home refinance loans that offer adjustable rate mortgages can also be ideal if you only plan to own your home for a few years because the rate cannot fluctuate very much in that time.
But, if you plan to stay in your home a long time, you should consider a mortgage refinance to switch out your adjustable rate mortgage for a fixed rate long term mortgage ( 15, 20, or 30 years).
You may have a higher interest rate than with an adjustable rate mortgage, but you will have the peace of mind of knowing that your monthly house payment will not be going up.
13. Break Free from Balloon Payment Programs
Home refinance loan programs that have a balloon payment are great when you want lower interest rates and a lower initial monthly payment, just like adjustable rate mortgage refinancing programs.
Nevertheless, the whole balance of your mortgage refinance is due to the mortgage company if you still own the property at the end of the balloon payment term (often 5 or 7 years).
You can easily change over into an adjustable rate mortgage or a fixed rate mortgage if you are in a balloon program now.
14. Get Rid of Private Mortgage Refinance Insurance (PMI):
Low down payment mortgage refinancing loan options allow homeowners access to home refinance loans with less than 20% down.
Sadly, these mortgage refinance loans also usually require that you pay for private mortgage insurance, which is designed to safeguard the mortgage company from loan losses.
You may be eligible to remove your PMI through mortgage refinance loans because as the value of your home goes up and the balance on your home goes down.
Whatever reason you want to refinance, we can help you navigate the options and the paperwork. Everyone is welcome; no problem is too big or too small.
5 Must-Knows Before You Begin to Refinance
Before you go about refinancing your home loan, you need to take five very important questions into consideration. Let’s take a closer look:
1. Do You Have Equity in Your Home?
Without equity built up in your mortgage, you will likely not be able to qualify for a refinance. With home values dropping, you may find yourself in a situation in which you no longer have any equity. This can be very unfortunate; however, if you know beforehand, you will be able to effectively determine whether or not you will even be able to qualify for a refinance. When it comes to the amount of equity that you will need, keep in mind that the average percentage is somewhere around 10 to 15 percent.
2. What is Your Credit Score?
Have you been watching your credit score? Do you even know what type of credit score you have? If not, you definitely need to take a look at it. Without a credit score of 720 or higher, you will likely find it difficult to qualify for a refinance through LowVARates.com. With a lower score than 720, you may be able to obtain a refinance, but your interest rate will not be very attractive. In fact, it may even be worse than your current rate which would completely defeat the purpose of refinancing.
3. How Much Money Do You Make?
Most of the lenders that you find through www.lowvarates.com will want your mortgage payment to be well under 31 percent of your gross monthly income. If you don’t have an income level that meets this type of criteria, you will not find it easy to obtain a refinance. On the other hand, if you have absolutely no other debts than your mortgage payment, a lender may be willing to work with you. Keeping this in mind, you should work to make sure all other large debts are completely paid off before applying for a refinance.
4. Do You Know that Refinancing Costs Money?
Don’t assume that refinancing your loan will be done for free. In fact, the overall cost of the process will be about 4 percent of your loan amount.
5. Have You Identified Your Goals?
Before you go about refinancing, you need to identify your financial goals. In doing this, your lender can help you secure a refinance that helps you meet your goals. For example, if you have the monetary funds available, you can set a goal to pay off your loan 10 years or less. With this type of refinance, you will likely be able to obtain a loan with a very low interest rate.
Steps to Refinance Your Home Mortgage
Refinancing is a process that involves the replacement of a current debt obligation with another having different terms and conditions. In other words, it is a process of seeking a new mortgage at a lower interest rate and using it to pay off the first one. Homeowners seek to refinance their home mortgage due to the advantages offered by it such as decreasing the number of payments, lower interest rates, or better terms and conditions.
There are eight steps that should be considered at the time of refinancing your home mortgage. These include:
1. Identifying Your Needs
The homeowner should be clear about the reason for seeking a new mortgage. It can be a drop in the interest rate or better payment options. Also, deciding on the amount of cash you may need is also important.
2. Familiarizing with the Entire Process
Before you rush to enter into a huge financial deal (in this case refinancing your home mortgage), it is advisable to get an idea about the entire process beforehand to be sure about the correct step-by-step process.
3. Know Pre-payment Penalties
Many mortgage loans involve prepayment penalties. At times a homeowner neglects the consideration of prepayment penalties that refinancing your home mortgage may bring. To take the decision, it is imperative to be well aware about the penalties involved in refinancing.
4. Know Mortgage Options
Before you enter into a new mortgage, it is better to know that refinancing offers some choices on mortgage plans. These include adjustable rate mortgage (ARM) and fixed rate mortgage. ARM is subject to changes in interest rates over the duration of the loan, while fixed rate mortgage offers an interest rate that lasts for the entire period of the loan.
5. Keep Documents Ready
Homeowner needs to apply for refinanced loan by completing a loan application form. Once you are sure about refinance, get all the documents ready regarding the credit history, current loan detail, current income, income tax returns, investment proofs and other details. Keeping all such documents ready helps the lender to check on your credit history, employment history, income details, and the property value to approve your refinance loan application. Presenting all the required documents allows the lender to ensure whether you qualify for refinance loan or not. The information gained through these documents is used in further loan approval process, which includes credit check, property appraisal, and employment verification.
6. Select a Lender
When you have arranged all the required documents, the next step is selecting a lender who can offer you the best rate and terms of refinancing your home mortgage. It is advisable to seek as many lenders as possible to narrow down the selection to the best one. The purpose of the homeowner should be finding the lowest fees and interest rate.
7. Negotiate Mortgage Refinancing
Having an idea about the estimated cost of refinancing, negotiating for lower fees and better rates with the lender becomes easier. Using an appropriate negotiation strategy can allow you to save on your income and get the best refinancing deal.
8. Finalize the Deal
After all the above mentioned things are covered, it is the right time to close the deal. Check all the terms and conditions of refinancing before you finally sign the deal.
Refinancing is a wise decision as it offers many advantages such as savings. Homeowners can convert their short-term benefits into long-term gains by calculating the total cost and understanding the step-by-step process of refinancing home mortgage.