Refinancing your mortgage means paying off your existing loan and replacing it with a new one. There are many reasons you may want to refinance your mortgage, including reducing the term of the mortgage, switching from an adjustable-rate mortgage to fixed-rate mortgage, consolidating debts, and tapping into home’s equity. However, you need to know when you should refinance your mortgage and whether it would benefit you.
Here are a few questions related to refinancing mortgage loans:
What Is a Refinance Mortgage?
A refinance loan replaces your existing home loan with a new one. Homeowners usually take this loan to customize their mortgage’s financial terms so that they can save some cash. By refinancing your mortgage, you can:
- Lower your interest rate, which means you can pay less than before over the life of your loan
- Eliminate your mortgage insurance
- Reduce your monthly payments
- Tap into your home’s equity
- Pay off the loan faster
- Experience greater cost stability, as you will have a fixed-rate mortgage
What Is Required to Refinance Mortgage?
You need to fulfill specific requirements to qualify for the refinance loan. Most importantly, you need to pay for a home appraisal and closing fees. Besides this, you must have a steady income source, good credit score, and sufficient equity.
When Should You Refinance Your Mortgage?
Refinancing your mortgage loan will help you save a considerable amount either on your monthly payments or your loan’s overall cost. However, you need to know when you should refinance your mortgage to experience the benefits. Here are a few common triggers that would indicate the need to think about refinancing your mortgage:
• Mortgage Rates Lower Than Current Rates
When your interest rates fall lower than your current rate, you can refinance your existing loan with a new one.
• Good Credit Score
When you have a good credit score, you can qualify for the loan with more favorable terms, including a lower interest rate, shorter-term, and a fixed-rate mortgage.
• Sufficient Equity
If you have built enough equity in your home, say 20% or more, you can eliminate your mortgage insurance. Eliminating your mortgage insurance when you refinance can reduce your monthly payments.
Factors to Consider When Refinancing Mortgage
Refinancing a mortgage can cost between 3 and 6% of your loan’s principal amount, so before taking a refinance loan, consider these factors to evaluate its benefits:
It calculates the amount you pay to get your refinance loan against the cost you will save from your monthly payments or interest rates. For example, if your refinancing cost is $3000 and you will save $100 a month, it will take 30 months to recoup the cost of refinancing, which is your break-even point. However, if you extend the loan term, your savings and your break-even point will vary. Consider refinancing only if you can achieve the break-even point faster.
Consider the total amount you will save on the life of your refinanced loan. If you can save more, you can refinance your mortgage.
Consider how much you can save every month by refinancing your mortgage.
Remember that the right time when one should refinance their mortgage is unpredictable. People’s requirements and circumstances may vary depending on several factors that include:
• Financial goals and strategy
• Credit score
• Existing interest rate and the rate available to you
• Home’s equity
It will be useful to contact your lender to determine whether refinancing is the right option and when you should do it.
How Can You Refinance Your Mortgage?
First, you need to determine your refinancing goal, including lowering interest, tapping into equity, reducing monthly payments, eliminating mortgage insurance, or reducing the loan term and act accordingly. Then, explore different lenders and settle with the one who is trustworthy and meets your refinancing requirements. It is good to request a loan within two weeks to minimize the impact of your credit score.
You can experience significant savings by refinancing your mortgage. If you are looking to buy or sell a home in the Hermosa Beach area, contact the experts at Brighton Escrow today. We will be happy to offer you an exceptional escrow service.