What You Should Know About Home Loan Refinancing

how to refinance your mortgage home loan

If you’re a homeowner then it’s crucial for you to have a clear understanding of your financial situation and objectives. This article will highlight some major reasons why people are deciding to refinance their home. 

Lower Your Monthly Payments 

In case mortgage rates happen to be lower than how they were when a home was originally financed, or in case a homeowner decided upon the adjustable-rate mortgage accompanied with a lower mortgage interest rate than the current one, the monthly payment will decrease. 

When a homeowner refinances, then the majority of payments will be lowered. Moreover, there will be some extra money for desired extras like new clothes, dinners, or investing in education or retirement fund. Nevertheless, that is not the only purpose to refinance. Even an interest rate decrease of one-half percent can make differences in the payments that can be quite noticeable. You can calculate your new monthly payment, interest rate and potential savings using a refinance mortgage calculator. It’s crucial to go over the numbers and to make sure that home will be occupied long enough to recover the costs of this kind of transaction. 

Build Equity Faster 

If you’re in the position to make monthly payments that are higher than usual because of an increase in salary or just good fortune, then you might consider switching from a 30-years mortgage to a 15 or 20-years mortgage. This is what allows you to build your equity faster and save some money on the financing fees. In other words, homeowners are building equity at a faster rate and without putting out substantial sums of money each month. In case refinancing costs are hard for you to justify, you don’t need to refinance to lower the payment term. You can simply pay some extra sum every month or consider the bi-weekly payment options. 

When Can You Refinance Your Home? 

Most lenders and banks will require borrowers to maintain the original mortgage for at least twelve months before they can refinance. It’s in the best interest of the borrower to review specific lenders for all details and restrictions. In most cases, it makes the most sense to refinance with the original lender, but that is not a must. It would be much easier to keep a client than to make a new one. You should keep in mind that typically a better rate can be obtained by staying with the initial lender. 

How Often You Can Refinance Your Home? 

Even though there are no regulations that cap how often you can refinance your home, lenders generally set limits. Some of them impose prepayment penalties on existing loans. Homeowner’s ability to refinance also depends on the equity he has in-home and on his credit score. In case a credit score is lower than the previous time you refinanced, then you may not get the approval, even if you apply for a home equity loan for bad credit

Combine Two Mortgages Into One 

You can combine a second mortgage or a home equity line of credit (HELOC) into a single primary mortgage at a lower rate. It’s similar to a cash-out refinance, but you won’t be reducing your home equity, other than for closing costs you might have to pay because you’re using it to pay off secondary mortgages. You additionally get the convenience of a single monthly payment, rather than two or even more. 

Cancel Mortgage Insurance 

In case you own lender-paid insurance, then you will be able to refinance once you reach 20% equity to eliminate premium that is built to your interest rate. The same applies to certain FHA home loans that are requiring mortgage insurance for the life of your loan.

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