If you have a fixed-rate mortgage on your home, you might think that it is locked in forever and you cannot make changes. This is not true! In many cases, you are able to refinance your current loan in order to save money on the interest rate, adjust the monthly payments, change the length of the fixed-rate loan, or borrow part of your home equity.
When people refinance their mortgage, they replace their current mortgage or home loan with a new one. A mortgage refinance can be especially helpful because you don’t have to stay with your current lender. You can choose from other mortgage lenders to find a better interest rate or other perks. Mortgage refinancing offers you several advantages. Here are some things you should learn before you refinance your fixed-rate (or adjustable-rate) mortgage:
Why Should I Refinance My Mortgage?
Refinancing your existing mortgage may help you lower your actual payment obligation, change the terms of your mortgage loan, consolidate debt, or even withdraw money from your house’s equity to pay for expenses or repairs. There are so many benefits attached to refinancing, including a better annual percentage rate (APR).
You Want a Longer Mortgage Term
A refinance may help you extend the term of your mortgage and get lower monthly payments. Lenders, however, take inflation into account when calculating interest rates, so a lengthier loan term generally implies a higher interest rate in the long run.
For many people, it can be hard to make ends meet with their current household income. If this is your situation, an option like a mortgage refinance could free up some cash so that more of it goes into investing or building up an emergency fund.
You Want a Shorter Mortgage Term
By switching from an extended repayment plan to a shorter one, you’ll most likely get lower interest rates. In addition, you’ll be able to pay off your home sooner when you refinance your mortgage.
A shorter-term generally implies that your monthly mortgage payment would rise. Make sure you have enough stable income to cover your new payments before agreeing to a shorter period while refinancing your mortgage.
Cash-Out Refinance for Debt
When you are looking to take advantage of the equity in your home and get a higher-value loan for it, you have the option of a cash-out refinance. You could replace your old loan amount with a better one (higher-value loan) and take out a portion of the equity you have by refinancing it.
You may choose a cash-out to refinance if you need cash to pay off an existing loan or unexpected expenses. If you have debts on numerous accounts, a cash-out refinance may help you consolidate your debts and pay off each account at a lower rate before ultimately moving to one monthly payment.
Debt consolidation can help you keep better track of your debts, as well as prevent missed payments, late fees, and overdraft charges.
How to Refinance Mortgage
Confirm Your Credit Score
When you refinance, your lender may grant a lower rate if your FICO score is high. Go to Annual Credit Report’s website to get copies of your Experian, TransUnion, and Equifax credit reports to ensure that your reports are error-free.
Every year, they are authorized by federal law to provide you with three reports for free. The site also has contact information for each credit bureau so you may notify them of any mistakes you find.
Check for the Best Rates and Lowest Fees
If you cannot reduce your interest rate by a significant amount, refinancing your house loan might be a mistake. Remember that refinancing should cover the majority of your existing loan’s fees. This includes taxes, an appraisal, origination fees, title insurance, and other fees. A mortgage refinances calculator is useful when you have a loan to value.
The Kelly Legal Group can assist you with all of the complicated elements of mortgage refinancing. Our experienced real estate lawyers are experts in mortgages and can help you choose the best option for you. We’ll be there every step of the way from organizing your finances to finding the right lender. To obtain answers to all of your inquiries and verify that the terms of your refinance are valid, call our real estate attorneys at (512) 505-0053.